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Protecting A Family Takes TWO INCOMES

Why Disability Income Insurance Is So Important

According to a 2017 report by the Bureau of Labor Statistics, 61.1% of families with children have two working parents.1 This figure should not surprise any young couple in today’s economy. Life is expensive and raising children, paying for education, saving for retirement and managing day to day costs is an outright challenge that generally requires the combined income from both parents working full time. 

For families making over $100,000.00 annually, to raise a child to the age of 18 will cost nearly $400,000.00.2 Such numbers indicate the hefty financial burden of raising a family and the lack of disposable income for unforeseen changes and or emergencies. 

Consequently, when an abrupt change occurs such as a serious illness or injury to a working parent, there are instant financial repercussions and little reprieve from the continued costs of everyday life. 

What would a dual income family do if one parent suffered a long term disability or illness and could not work? 

How would the remaining spouse handle the stress of increasing their earnings and assist their disabled husband or wife at home? Would simply cutting back on existing expenses be enough? 

Sadly, these valid predicaments are rarely planned for in advance since most Americans do not want to confront thoughts of such a life altering event. This potential loss of income needs to be insured against using the leverage of insurance. Purchasing an own occupation disability insurance policy - either to supplement a group plan or on its own, will help replace that very important stream of income that is a necessity for maintaining a comfortable lifestyle. One additional measure to consider if the employer plan does not offer short term disability insurance coverage is to establish a personal emergency fund to pay bills for the first 3 months before the long term disability insurance policy activates. 

The amount of coverage provided to an individual varies depending on the amount of net taxable income verified usually through federal tax returns and employment contracts. Moreover, if there is existing coverage in force there will be a cap of how much additional insurance can be purchased. Disability benefits paid to a person under an employer plan are usually taxed at the federal and state level whereas individual plans typically provide tax-free benefits. While a person cannot replace 100% of their income using this insurance, those who properly insure using both group and individual coverage can get pretty close. 

Certain states offer their constituents disability insurance benefits that vary in amounts and benefit periods. Currently, California, Hawaii, New Jersey, Rhode Island and New York provide some form of income replacement plans for their residents. These forms of coverage can and probably will change so it is imperative to check their websites for updates. 

Dual income households share a common misconception that one working spouse could shoulder the financial and emotional burden in the event the other partner was disabled for years or a lifetime. Many individuals forgo the conversation for its difficult nature and added expense from the insurance however, the goal should be to really outline the probability and be logical. Nearly 1 in 4 individuals in their 20's will suffer a disability that lasts 3 months or longer. 

For a young family who needs every dollar to support their lifestyle, including retirement savings, how likely would it be a supporting spouse would be able to increase their earnings AND take care of the children if their partner suffered a devastating injury or illness? The reasonable answer would be not too likely. 

Make it a financial goal this year to have a discussion with a disability insurance specialist who can take a look at your disability insurance protection. This will provide anyone with important information to make an informative decision about how much and which coverage to take. Moreover, there any able resources to review disability insurance information online, whether its a quote or reading articles that explain how this form of insurance coverage works.

Jack Le, CFP®, CLU® holds a Financial Representative contract with The Guardian Life Insurance Company of America based out of New York, NY. 


2017-51974 Exp. 12/2019

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