Wednesday, October 4, 2017
Protecting Your Assets from Health Problems
When most of us think of protecting assets we think of warranties. Having worked for Best Buy when I was younger I can assure you that you can put a protection plan on anything, even a $40 microwave. What about the things that have actual worth? What about the things that cannot be replaced? The good thing about money and buying stuff is that the more money you get the more stuff you can buy. What if there is no more money coming in? We all have many valuable assets in our lives. The most valuable asset you have is you, and your ability to provide for yourself and the ones you love. Others include your family, your home, your savings and your lifestyle. These assets are worth much more than any iPhone or flat screen TV. Those can be replaced. The important ones cannot be replaced once they are gone. In this post, I will speak to 4 valuable assets you have, what can happen to them, and how to protect them. Becoming financial stable is important, but so is securing that stability.
1) Your Income
Throughout my time in the financial industry, I have found it amazing how little people know about their disability package through work. Some I have met even think they have coverage even when they don’t. Typically, disability plans through work can pay you anywhere from 65-85% of your income. Disability plans through multiple sources are coordinated so as you don’t receive over 100% of your pre-disability income. Where it gets sticky is when you crunch the numbers:
- 1 in 3 people, on average will be disabled at least 90 days or more before they reach age 65
- These disabilities can last months or even years
What happens when you are on disability? If you are receiving only 65% of your income would you be able to survive? What if you didn’t have a group disability plan through work? The government of Canada provides:
- 55% of your insurable earnings through Employment Insurance
- You can receive this benefit from 14 weeks up to 45 weeks, depending on your region
- The maximum you can receive is $543 per week
- CPP Disability defines disability as both “severe” and “prolonged,” meaning you cannot work any job
Employment Insurance Benefits – An Overview, Government of Canada Website
CPP Disability Benefits – An Overview, Government of Canada Website
I have mentioned several times that the average Canadian does not have adequate emergency savings. I have also mentioned how the average Canadian has $22,125 in non-mortgage debt. A drop in income can crush your ability to handle the payments due every month.
Solution: Understand your group coverage through work. If you don’t have group coverage, seek a job that does or obtain personal coverage. Establish a juicy emergency fund to weather the storms.
2) Your Investments
A home is an investment. Your retirement savings are an investment. You work your butt off to save over time and pay down the good debt that is your mortgage. For many who fall on hard times, the first place they turn when they need cash is their investments. I stress to people that each investment should have a purpose.
Registered Retirement Savings Plan (RRSP) – Retirement
Tax-Free Savings Account (TFSA) – Liquidity, Take Advantage of Opportunities, Vacations, Retirement
Home Equity – Place to live, Take Advantage of Opportunities, Retirement, Generational Legacy
Whole Life Insurance – Generational Legacy, Retirement, Security
None of these purposes stated getting out of debt or paying a regular income to live off of. There is a reason for that. Investments weren’t designed for guarding against disaster. Investments are designed to grow over time and provide wealth to the person keen enough to contribute. Withdrawals from these investments delay or even ruin the goal of their intended purpose. When unable to work you may also stop contributing to your investment plans such as your RRSP because you are cash-strapped. That would delay the process as well.
Canadian Life and Health Insurance Association Guide
Solution: Strive to replace all or almost all your income with emergency savings and insurance. Once again, truly understand your workplace group package and use personal insurance to fill the gaps. Save a healthy emergency fund and have a plan to continue to contribute to savings plans even if you are off work. Reducing contributions is far better than stopping them completely or even worse, withdrawing from these investments.
3) Your Family
This one is never fun to talk about, but you will die one day. In fact, everyone you know will die one day too. It was an interesting day for me when I bought life insurance. It was an odd feeling of acceptance and satisfaction knowing one day I would be gone and my family members would have some money because of it. My goal with securing personal life insurance coverage was to not be a burden on loved ones if I were to die. They would obviously be devastated and the ceremony attended by thousands of people, probably just to make sure I’m dead, would be hard enough for them to bear. Personal coverage to provide disability income is crucial while you are alive, but when you die, that’s it. No more possibilities of making money, no more help, no nothing. Things to take into consideration are how your family will pay the bills, contribute to investments, save for educational goals, and survive in general. Losing the family home is not an option. As many families depend on dual incomes to survive, with one gone, what would happen? It’s a scary thought.
82% of people think they should have Life Insurance, yet only 62% have it. 40% of people don’t think they have enough which means that there are much more who think they have enough but actually don’t.
The shocking statistics behind the life insurance coverage gap
Solution: Personal Life Insurance can be as cheap as your daily cup of coffee. Understand your workplace coverage and obtain personal coverage to fill in the gaps.
4) Your Lifestyle
It might be hard to think about your lifestyle as being an asset, but it truly is. You need to think about what you do on a day to day basis. Going to the store, getting together with friends, going on vacations, upgrades to your home, putting the kids through programs, eating at a restaurant are all things we do every year. This is your lifestyle, the way you enjoy living your life. While injury or illness might take you away from work, it is not a jail sentence. Maintaining your current lifestyle while away from work is something that most people would like to do. If you were in a wheelchair for a year, would you have to stay home due to lack of funds? If you were sick for a few months, would the kids have to forego sports so you could pay the bills? As you get older you realize that the small things you do on a daily basis are the true reason you save your money and plan for the future. A comfortable retirement is only comfortable because you are not locked in a room eating canned beans. Protecting your desired lifestyle is often more important than getting to the finish line at all.
Solution: Comprehensive financial planning takes into account lifestyle goals. If the desired lifestyle requires a certain income, steps must be taken to protect that income. This includes work coverage, individual coverage, and government-sponsored coverage. Not one method will solve them all. Understand what kind of life you will want to live, and take the steps to secure that lifestyle.
Many people will take the steps to protect their cell phone before they protect their home or income. If you are to look at your group insurance package through work, they are often confusing. The reason for this is, caught up in all the fine print is language that might result in you not having coverage in certain situations. Truly understanding what you are covered for and what you need to do on your own is worth its weight in gold. Securing your assets will allow you to live the life you want, no matter what happens to you.
Thanks for reading today’s post on asset protection and don’t forget to tune in tomorrow when I discuss the Disability Tax Credit and the Registered Disability Savings Plan. Shoot me a message at joe@budgetboss.ca if you would like a group insurance analysis for you and your loved ones. Have a great day!
“I believe that the greatest gift you can give your family and the world is a healthy you.” – Joyce Meyer
Email – joe@budgetboss.ca
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