- Husband—age 35, earning $90,000 per year
- Wife—age 34, housewife
- Two children:
- Girl—age 3, in preschool
- Girl—age 6, in first grade
- Monthly living expenses = $7,000
- Current savings = $50,000
- Appraised Value: $550,00
- Loan Balance: $350,000
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.
- 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.
- 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: All of the above—if not already covered
Not Currently Applicable To The Scenario: All of the common reasons for having disability insurance are worthy of consideration.
Overview: At first glance, this family’s finances seem to be in order enabling them to be less concerned about an immediate financial crisis resulting from the wage-earner’s unexpected disability. Their savings of $50,000 represents an emergency fund of over 7 months of expenses. Additionally, they have $200,000 of equity in their home, a good portion of which could be accessed through a Home Equity Line Of Credit (HELOC). It is not unusual for banks to offer HELOCs up to a combined loan-to-value ratio of 80% (sometimes even 90%). In this scenario, their home is worth $550,000, with a loan amount of $350,000. A combined loan-to-value ratio of 80% equates to $440,000, allowing for a HELOC of $90,000.
Irrespective of the apparent comfort from the above, he should know what disability insurance benefits are available through his employer, if any. If his employer does not provide any long term disability coverage, he may want to consider a long term disability insurance policy with a one year elimination period; usually the most inexpensive policy available.