- Wife—age 25, college graduate, earning $75,000 per year
- Husband—age 26, college graduate, earning $60,000 per year
- No dependents currently, but planning to have 2 children by age 33
- Monthly living expenses = $5,000
- Current savings = $25,000
- Appraised Value: $350,000
- Loan Balance: $315,000
Reasons For Coverage Now:
- Peace of mind—Knowing that your family will not have to suffer financially from a loss of income caused by a disability that prevents you from performing your job and losing your income.
- Limited savings— Without significant savings, the family’s living expenses would not be covered for an extended period of time, causing hardship.
- Income replacement— Proceeds from a disability insurance policy can replace all or a portion of the wage-earner’s income lost due to disability.
- Complement to existing disability benefit plans— There are various public and private disability plans for which you might qualify, but they may not be sufficient to cover your financial exposure due to a disability.
- Lock in a low premium and future insurability at a young age— Premiums for disability insurance will never be more affordable that they are today. Purchasing early guarantees that future events will not keep you from qualifying for coverage.
Reasons To Consider Coverage: Same as Reasons for coverage indicated above, particularly in light of their intention of having two children by age 33.
Not Currently Applicable To The Scenario:
- Sole wage earner in the household— The non-disabled spouse might be able to seek employment, but it is likely to take some time before employment actually begins, and the salary might not be sufficient to cover the family’s living expenses.
Overview: The need for disability coverage for this young married couple is somewhat diminished by a variety of factors:
- Both husband and wife are gainfully employed, and one of their salaries could cover the vast majority of their monthly living expenses, thereby minimizing a potential cash flow problem.
- While their current savings are a bit short of an adequate emergency fund (minimum 6 months of ongoing monthly living expenses), they have demonstrated an ability and a willingness to save money. With their current salaries and savings habit, they could have an adequate emergency fund in short order.
Having children would impact this a bit since monthly expenses would increase substantially and income could be reduced by one of the parents becoming a stay home mom or dad. Of course, if a long-term disability occurred, the decision to have two children by age 33 could be put off or even taken off the table.
In any case, each should know what disability insurance benefits are available through their respective employers, if any. While they do have some equity in their home, these funds would not likely be available since the loan-to-value ratio (loan amount divided by market value) is 90%, generally considered too high for most lenders consideration.