Your Car or You. Which Do You Value More?

It’s remarkable how many people think nothing about renewing their car insurance, yet balk at the prospect of looking after themselves.

The same applies to our homes; we insure our homes and the contents within them without a second thought.

We sleep easy knowing that we’ve got adequate cover in place.

Of course, we hope to never need to claim, but it sure is comforting that if a burst pipe flooded the house, or if someone runs into the back of your 14 year old Volkswagen Golf outside Sainsburys, you’ll be okay.

But here’s a question…

What is the single greatest financial asset you have? Is it … A) your pension, B) your home, or C) you?

Ten points to those of you that correctly answered C.

Yes – you are your greatest financial asset.

You’re probably now thinking that your pension or your home is surely worth many times more than ‘you’ are.

But these assets are worthless without you as the bedrock underpinning them.

If you’re not earning … then the mortgage doesn’t get paid.

If you’re not earning … then not only do you not have sufficient cash to pay money into a pension, but you also don’t have relevant earnings to allow you to receive tax relief on your pension contributions. There goes your long-term retirement plan 💥

Put simply, if you’re not operating on full capacity then the entire financial plan crumbles, fast.

So why is it then that so few of us think about insuring our lifelong earning potential?

How many of these sound familiar to you?

The cost is too expensive

Wrong. Putting in place a policy is way more affordable than you think, and premiums often sit around £30 – £50 a month in my experience.

If you think you can’t afford this but are saving regularly into pensions or ISAs then it’s more than likely that you should be directing some of those contributions out of investments and into adequate disaster planning cover.

Too many of us focus on long term investing when there is absolutely no disaster game plan in place.

See next point.

I’ve got plenty tucked away in savings that I’ll live off

If that’s the case then well done. But I would argue that those hard earned and well-invested savings are earmarked for other purposes.

Encashing them early may result in irrecoverable market losses (what if you had to encash during a market crash?).

In the blink of an eye your retirement pot, your education for the children pot, your work sabbatical pot has blown up.

Surely it’s better to retain those funds for the purposes they were originally planned for.

Why risk your long-term financial security, independence and dignity for the sake of a monthly premium on an insurance product when you happily insure a depreciating asset such as your car?

I’m sure there are benefits available to me that I’ll fall back on

Sorry to be the one to tell you this but the state and your employer likely won’t have your back.

You may be entitled to some sick leave from your employer, but it’s often the bare minimum Statutory Sick Pay @ £109 a week for 28 weeks.

That’s hardly going to set your world on fire, especially if you’ve grown accustomed to a certain standard of living on a good salary.

And after 28 weeks, you are on your own.

Nothing coming in. Nada.

What happens if you can never go back to the skilled career you were in previously? Suddenly your lifelong earning potential has crashed, and with it too your ability to meet your financial objectives.

Summary

We wrestle with the prospect of insuring our earning potential, but hardly blink at our car insurance renewal quote, which is likely to be several times more expensive than any earnings potential cover you take out.

Why is this the case?

Car insurance is compulsory, but insuring your income isn’t.

Is that why many of us don’t bother?

Or is that we just don’t like to think about our own vulnerabilities and instead we tend to assume everything is okay and will always be the case?

I’m not trying to be bleak or morbid here, but the truth of the matter is none of us know what’s around the corner.

Wouldn’t you rather have the peace of mind knowing that if the worst was ever to happen then you would be okay? That’s the ultimate answer we’re all aspiring for when it comes to managing our personal finances.

Putting in place solid cover doesn’t need to cost the earth, and the sooner you do it the more affordable it will often be. Delaying until tomorrow will likely be more expense, and at worst too late.

This is in the same category as writing your Will, or putting in place a Power of Attorney arrangement.

Never nice to think about, but when it’s done, it’s done.

Score it off your to-do list, and move on.

Set, and forget.

If you ever find that you begrudge the premiums every month, then I describe these to my clients as the greatest waste of money you can ever hope to spend.

If you’ve ‘wasted’ the premiums then that means you’ve stayed fit and healthy.

And if you’ve stayed fit and healthy then your financial plan has remained fit and healthy too.

That seems like a good thing to me.

Thanks for reading.

Benjamin

Benjamin Mitchell

Benjamin Mitchell

I’m a chartered financial planner that can help you plan for tomorrow and also live for today.

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