Young families and couples starting out their lives have a lot of liabilities to protect, and deal with a higher amount of risk than older, more established couples. Here’s a checklist on what to protect and how to prepare as a young couple.
Tom, 35 and Mary, 32 are newlyweds, and they have two young children. Tom had put a down payment on a beautiful home in the suburbs before they got married. Now, Mary lives in the home as a full time housewife to raise the children. Tom has a commute 20 miles away at a good job that pays him $80k a year. Life is good for this young family.
SCENARIO 1: Tom is severely injured and can no longer walk after an accident commuting to work
Tom receives the state’s 50% short term disability for 6 months, which is not enough to pay the family’s expenses. They dip into savings and after 6 months, they are forced to sell the home. A downward spiral commences financially and emotionally.
- With Short Term Disability Insurance, Tom is able to supplement another 30% of his income to get to 80%. No expenses (mortgage, standard of living) are affected.
- He also has Long Term Disability Insurance and past the 6 months, he starts receiving 65% of his income (tax-free, which is basically his net income after taxes).
- Tom also has Supplemental Insurance for accident and hospital, so he received money from the initial accident and every subsequent visit.
Tom focuses on recovery for the next few years and spends quality time with his young children with no financial hiccups. In fact, going to the doctor becomes a not-so-horrible experience as he gets paid, and takes the family out for a nice dinner.
SCENARIO 2: Tom dies due to the same accident
Mary receives a tiny life insurance payout ($25,000) from Tom’s work, which is barely enough to pay for the funeral and keep her afloat for two months. She is forced to sell the home. A downward spiral commences financially and emotionally.
- With Estate Planning, Tom re-titled the property from separate property to community property. No hiccups in ownership, and Mary owns the house with no title issues.
- He also had Life Insurance and Mary receives a $1.25 million payout, so she pays off the house and can slowly rebuild her life while caring for her young children. She puts in the excess money into college savings.
- Tom also covered his family with Supplemental Insurance accident and hospital, so another $40,000 was paid out to Mary and for initial hospital visits before Tom passed.
Though Mary had a tough time after Tom’s passing, she learns to become independent and a fearless mom, raising two young boys, who find great careers as a lawyer and doctor. They are all thankful of their dad’s responsible planning that ultimately shaped their lives.
Responsible Protection Planning
These are the protections available:
- Long term disability insurance
- Short term disability insurance
- Supplemental insurance
- Estate plan
- Take our quiz here to see how prepared you are for estate planning.
- Life insurance
- Take our quiz here to see what you need for life insurance.
These assets are not only for you, but for your family too. Protection planning is key, we are here to help.
Marc Ang (Mangus) is a financial planner based in Claremont, CA, focused on spreading the gospel about responsible, educated and smart financial planning. This includes supplemental insurance, crucial for young families, provided through specialist Tony Merino.