Myth #2 – Your home is your biggest asset
What is your biggest asset? The majority of people I speak with tell me their home is definitely their biggest asset, by far (I live in California, so I can understand this viewpoint). According to an article in A.M. Best’s Consumer Insurance Center, approximately 96% of homeowners have homeowners insurance (source: 2006 Insurance Research Council Poll). How much is this asset worth – $200,000, $500,000, $1,000,000 or more? Certainly, this is a large asset, but the largest?
Your largest asset is, in fact, your ability to earn an income. Without your income, you would most probably have a difficult time holding onto your other assets - your home, your savings, cars, etc. How large is this asset? Let’s take a look at a 35 year old physician earning $200,000 annually. If she were to become permanently disabled at age 35, she would lose out on approximately 30 years of income (based on a retirement age of 65). Even without factoring in inflation, her loss of income would be about $6,000,000. Her total loss would be compounded if she were to dip into savings, retirement accounts, cash-value insurance policies, etc.
Because of this myth, 96% of Americans protect their homes with homeowner’s insurance, yet only approximately 30% of Americans protect their incomes with long term disability insurance (according to the Social Security Administration). Why don’t a larger percentage of people purchase this type of insurance? This myth is one of the reasons. Most people don’t calculate what their lifetime earnings might be.
In the next three entries, I will present the other myths that keep people from protecting their most valuable asset - their ability to earn an income.