Dual Income Insurance Conundrums

In his column “Financial conundrums of dual income doctor households” Smart Money MD discusses the unfairness of taxation for really any dual income family:

 The U.S. tax system almost always “punishes” the spouse with a lower income.   The tax system is progressive, just like how the jackpot in those slot machines keep on growing.  The higher your income, the more likely you will get pushed toward a higher marginal tax bracket.  Suppose a dual income household has a physician earning $350,000 a year and an IT customer support specialist earning $60,000 a year.  The physician income alone puts the family in the 32% marginal tax bracket.  If the IT professional were single, he’d only be in the 22% bracket. If he were the sole breadwinner in the family, they’d be in the 12% marginal bracket.  Instead, the family will be in the 35% marginal bracket.  This means that a good portion of his income will be taxed at 32% (until the family income reaches the 35% threshold) and the rest at 35%! Perhaps that is the penalty one pays for being in a high-income household.  For some households, giving up 35 cents for every dollar you earn on a $60,000 might not be worth it. 

But, another issue often comes up when a dual income couple has to decide on disability and life insurance issues.  An argument can be made that if both spouses each make enough income to support family needs alone, that this mitigates against the need for having much of this insurance coverage.

I’d argue otherwise.  In the case of one spouse dying early, the other spouse might have responsibility for children and therefore not wish to work as hard (or at all).  In the case of one spouse being disabled, the same factors come into play-the remaining healthy spouse now has more “home” responsibility than before-and will have more financial and “time” costs.

I’d also consider the possibility that an accident could cause some simultaneous combination of death and/or disability for both spouses.  Run through scenarios like this (as uncomfortable as they are) and consider what type of income/savings you’d want and need.

Remember that insurance is to cover the small chance of a large loss. Buy enough to cover the large loss until you have accumulated enough assets to self insure.  Then you can sleep better.

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Steven Podnos MD, CFP

Steven Podnos MD CFP attended the University of Florida College of Medicine and trained in Internal Medicine, Pulmonary and Critical Care Medicine at UT Southwestern in Dallas Texas. He moved back to Florida with his physician wife (ENT) and raised a family while practicing Pulm/CC medicine for over twenty years. During that time, he also started and ran a Hospitalist program for several years. In 2002, Steve began a slow transition towards having a Fiduciary Fee Only Financial planning practice-at first just for friends and family. As the practice grew, he transitioned out of full time medical practice to full time financial planning. Dr. Podnos joined the US Air Force Reserve in 2008 as a critical care physician and flight surgeon. He deployed twice to Landstuhl Army Hospital in Germany as an intensivist during the Afghanistan war in 2009 and 2010, and as a critical care air transport (CCATT) physician in Okinawa in July 2018. His firm, Wealth Care LLC now serves approximately 100 physician families nationwide and another fifty non physician families with both financial planning and wealth management. He is a staunch advocate of independent medical practice, believing that the corporatization of medicine and Electronic Medical Records are both harmful to physicians.