Insurance isn't the cheeriest of topics, and like many other unpleasant subjects it's easy to put out of mind. However, if you're serious about building a life together, it's not something you can ignore. Both life and disability coverage are fundamental to your long-term financial plan. There is no hard and fast way to say which is more important, because each couple's situation is different.
Death and Disability
To the layperson, death intuitively seems like the worst-case scenario any couple can anticipate. Emotionally and personally, there's a lot of truth to that. From the pragmatic perspective there are other considerations, including the effect the loss of your earnings would have on your partner. If you're earning $50,000 and would likely have earned more than $100,000 annually in your peak career years, that's millions of dollars in lost income. The unfortunate reality is that disability can cost you just as much, and adds the potential for higher expenses.
The Social Security Administration estimates that 30 percent of all working Americans can expect to become disabled at some point in their career. This is much higher than the risk of death during your working years, which is in steady decline because of improvements in medical care. Aside from loss of income, disability can create a number of extra costs. For example, you might need to renovate your home to accommodate a wheelchair, or order a custom-built van with hand controls. In a worst-case scenario, you might even need permanent nursing care or cripplingly expensive medications.
Your needs for life and disability coverage will fluctuate over time. In your early years together, when your income is relatively small compared to your responsibilities, it makes sense to prioritize life coverage. As your income grows you'll have the assets to cope better with a death, but disability becomes more of a threat. At that point it makes sense to reduce your life coverage and take out a disability policy, especially if you have life coverage through your employer. On the other hand, if you're a professional who paid a heavy price for a partnership, disability coverage is a priority at any age.
Ideally everyone would carry enough life and disability coverage. Term life insurance is affordable for most Nesters, but disability coverage is not. One disability claim by a young person can last for decades and cost the insurer millions of dollars. Further, some disabilities such as mental illness, back problems and soft-tissue injuries are open to abuse. Keeping the costs of a policy in line with your budget can require accepting lower coverage or less-favorable terms than you'd like. If you have group coverage available it can help, but bear in mind it's only good until you leave that employer.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.