Combating the Bag Lady Syndrome - Part 2

In this blog series, we are looking at ways women can fight the Bag Lady Syndrome, which is the fear of losing everything and being left with no financial means. Studies have shown many women worry about this, regardless of age, marital status and socioeconomic class. Although this is common, there are things you can do to squelch this fear when it bubbles to the surface. In this article, I want to focus on insurance coverage, specifically looking at life insurance and disability insurance.

Life insurance can bring you peace if you rely on someone else’s paycheck to pay bills each month or if someone needs your paycheck for their financial well-being. Let’s start with situations where you need someone else’s paycheck, such as a spouse or partner. If you are in this situation, you need to be in a position to receive life insurance at that person’s passing, so you can continue paying the monthly bills. In this case, you want to make sure there is adequate life insurance on your partner and you are the primary beneficiary. Many times, we plan for enough life insurance to pay off the mortgage and any other debts, educate the children, cover final expenses, and perhaps provide a monthly income supplement if the survivor will need it.

If, on the other hand, someone needs your paycheck, like your children or partner, you need to carry adequate life insurance for them.

In a case where you need no financial help and no one relies on your paycheck, life insurance is not likely needed.

The coverage I see most often overlooked is disability insurance. This is like paycheck insurance because it pays cash if you become disabled and cannot work. Because the probability of disability before retirement is significantly higher than the probability of dying before retirement1, we need disability insurance to make sure we can continue to pay our bills each month – make the house payment, buy groceries, keep the utilities going, etc. Disability insurance is broken down into two forms: short term, which usually covers a disability lasting up to 6 months, and long term, for disabilities lasting more than six months. The most critical coverage is long term disability because most of us could squeak by for several months, but our savings is only going to last so long before we run out.

Because the likelihood of disability is higher than death, disability insurance is more expensive than life insurance. Some companies offer long term disability coverage for their workers, which tends to be more affordable. If your employer does, make sure you are covered and learn the details – how much would you get if you became disabled, how long before it kicks in and how long will it pay. Make sure you could pay your bills on the amount they will pay.

If your employer does not offer long term disability insurance, you would have to buy a personal policy. A personal policy will pay based on the monthly benefit you purchase, so you will want to determine how much money you need to pay your bills each month, then make sure to buy that amount. If you rely on a partner’s paycheck, make sure he/she has long term disability insurance too.

By addressing death and disability in your finances, the bag lady fear has reason to stay at bay.

- Juli Erhart-Graves, CFP®, Worley Erhart-Graves Financial Advisors