Bob Burger, CFP®, CDFA™

Hi Jacob, Thanks for the interesting question as I bet many readers question the same concern, especially if they are not single and someone else is dependent on their income. You should ask yourself what would happen if you were unable to work (become disabled) from a financial perspective. If the answer is significant financial hardship, you may consider pricing a disability policy (beyond current coverage). With the knowledge of the cost, compare how your other financial goals would be affected now that you have fewer funds (premiums paid) going towards other needs and desires (retirement, emergency fund, etc…). Given that you are young and single, your financial risk of being disabled may be higher than death. Measure the costs against the perceived benefits (of all choices) and decide which gives you the most benefit. I agree with the previous answer from Eve. Gain knowledge from someone who is not directly compensated by their recommendation. Good luck.

Tanya, great question. This is a situation that is often overlooked. I speak from experience as my mother passed during my teenage years (without insurance). My father had to assume both parenting roles and manage a career. I watched as he made career decisions that he may not have made if he didn’t have to be mom and dad. Insurance does not change the fact that the surviving spouse will play both roles, but it will provide a financial cushion. Hiring someone to cook meals (insert numerous other tasks) would be a great help to your surviving spouse and your children. The cost of purchasing term insurance would probably be relatively affordable (assuming no major health concerns). Life insurance is purchased to help those left behind. You hope you never use it, but if something were to happen to you, your family will benefit from having one less concern in this emotional period of their life.

A diversified/well-balanced portfolio is in most cases the best solution. Your portfolio should include multiple asset classes. Typical asset classes include large and small capitalization stocks, international (developed and emerging markets), fixed income (domestic and international) and in many cases commodities and/or real estate. The reason a well diversified portfolio is often the best solution is based on the fact that each asset class has different risk and return characteristics. Balancing the risk and return characteristics provides a better overall investment experience (think hitting singles versus homerun/strikeout). As an example, the media often discusses the “lost decade” in which the S&P 500 was flat for 10 years. A well diversified portfolio did not suffer that fate. Your portfolio should be based on your financial/life goals. Your goals today (30’s, no kids) will undoubtedly change as your life changes. Your time horizon will change as will your risk tolerance level. As you review your goals – today or sometime in the future – combine asset classes that provide a high likelihood of achieving your goals with the minimal amount of risk needed to do so.
As an example, suppose you want to retire at age 60 and this is your only goal. You could review various portfolio allocations (well – balanced) to determine which allocations (percent stock and bond) would have achieved your goal. If uncomfortable using historical returns, you can use other assumptions. Next, review the worst annual return of the various allocations. Does the worst year return frighten you? Would you abandon your plan if that happened in the future? With that information in hand, you can begin the process of building a portfolio/financial plan based on your needs and goals. You should repeat this process as you move through life. It is fair to guess you will have different goals if children become part of your picture and your risk tolerance may change as you close in on retirement age. Good luck. Thank for the question.