How much disability insurance do you need if your spouse works?

The purpose of disability insurance is to ensure that your dependents are well-taken care of in case you are no longer able to work to support them. This is a real and unfortunately not rare situation. If you are a doctor and the sole breadwinner in your household, you have get disability.  It doesn’t have to be much to begin with, but depending on your expenditures and net worth you still need some some coverage.  I can only think of one reason why a doctor finishing her training would not need disability insurance:

You or your spouse is independently wealthy, and neither of your incomes are necessarily for you to sustain your living standards for the rest of your life.

I actually know plenty of people who are fortunate enough to be in this enviable situation.  Most of these guys are pretty admirable too—many of them have taken financially unfavorable jobs for prestige, altruism, and other personal reasons.  Chances are that you aren’t in this type of arrangement. If you ever (or when you do) reach financial independence, you can axe your disability because you are self-insured. You don’t have rely on anyone else for your existence. That’s a good milestone in your life to reach.

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What should you do if both you and your significant other has a job? Can you and should you lower the amount insured? Should you just insure the spouse with the higher income? Can you scrimp by without disability insurance for either spouse? Let’s look through each scenario and weigh in the pros/cons.

Neither spouse buys disability insurance.

This is not advisable. Simple example: You take a family trip to ski. Everyone takes a tumble. Your husband, the orthopedic surgeon, breaks his wrist in five places and ends his short but storied career as the premier should specialist in your area.  You break a leg and shred through your intrinsic hand muscles. Technically you could still practice as a radiologist but can only go a tenth of your speed before injury. You have to take a 90% pay cut. Junior has to withdraw from his private elementary school and you have to give up your SoulCycle membership.

The higher earning spouse buys disability insurance only.

If the higher income spouse exceeds her counterpart by several fold, then perhaps this makes sense. Take, for instance, a nurse practitioner and his wife, the neurosurgeon. The nurse could buy up disability insurance—this might cost about $1,000 annually—but it might not make a difference.  The cost of a $1,000 annually to have some insurance would not truly impact the savings power of the family. The loss of his income would also not really impact the bottom line of the family.  The neurosurgeon should, however, buy up to the maximum amount until the family becomes financially independent.  If I were in this situation, I’d forgo disability for the nurse and purchase for the neurosurgeon.

You might also like: How To Maximize Your Finances As A Two Physician Household.

The tougher situation is if the difference in income between both spouses is similar. At this point, it’d depend on how much the insurance would impact the bottom line in the family.  Would the additional cost of disability insurance otherwise prevent junior from attending tennis camp every year? Would it slow down the family’s financial goals significantly (I would hope not).

Both spouses purchase disability insurance, but at an adjusted rate.

In some ways a two professional household has it easy–there are two incomes which are hopefully sizable.  Double the firepower. Double (or even triple) the savings. Double the job security as well. If a family like this plays its cards right, it will likely reach financial independence must more quickly than most single income families.

Maybe a front-loaded schedule of disability insurance would go like this:

A more complex schedule would include the earning velocity of the household.  High-income and high expenditure families should still purchase a relatively higher percentage of their incomes in disability even as they approach financial independence, because they have a large delta even towards the end of the journey.  Lower expenditure households can drop off their coverage at a much higher rate since they have a larger buffer.

How much of your income is covered in your disability insurance?

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