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.