What is your most valuable asset?

What is your most valuable asset? You might say it is your car, an antique piece of furniture or a piece of jewellery. I would say that you are mistaken.

Let’s start with jewellery. The most expensive piece of jewellery for most people would most likely be an engagement or a wedding ring. While some engagement rings can cost as much as $30,000; one comparison website (RateSupermarket.ca) pegged the average cost of one at about $4,000.

Now, a car is more expensive than an engagement ring. If we use DesRosiers Automotive Consultants or autoTrader as our source, both have indicated that the average passenger vehicle in 2019 was just over $40,000: $40, 941 and 40,900, respectively. However, we can do better than that.

As an example, think of a person’s house. Given that the average house price in Calgary is between $448,000 and $457,000, one could argue that that is the most expensive or valuable asset. For, it is more costly and beneficial than anything previously mentioned. However, I would argue that a house is not your most valuable asset.

To afford a $450,000 house, the individual or couple would have to have an income which is above $135,000. We know that because all lenders apply debt servicing ratios to every mortgage application. Those ratios - including the GDSR and TDSR - are set so that no lender would provide a mortgage to anyone who is paying 40% of their income to debt and other fixed costs. Consequently, we can work backwards to guess at a probable income.

Given that a bank will collect their mortgage loan over 20 (or more) years, they want to make sure that every debtor can pay their mortgage for just as long. As a result, we can assume that this mythical homeowner would have the same income for just as long or longer. Using those assumptions, we can see that this mythical homeowner would make more than $2.7 million dollars over their lifetime. I would argue that that number would be more than their RRSP or RESP. Therefore, a homeowner’s income is their most valuable, important asset.

If that is the case, have you insured your income? Have you insured that your “income” will provide for you or your family or your dependents (or all of the above) for the next 20 years? You probably have insured your car and your house and your jewellery and your antiques. However, have you insured that asset which is more than $2 million dollars? If not, you might want to get on it.

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