Paying Bills Even If You Can’t Work

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Paying Bills Even If You Can't Work

Paying Bills Even If You Can’t Work
If you are like most of our other clients with high incomes, the single greatest asset your family has is your earning power. This reality motivates most people to buy life insurance as protection against a premature death. For most people, purchasing life insurance is “common sense.” While most people with whom we speak are underinsured, they do have at least some protection against a premature death. However, most Average American professionals, entrepreneurs, business owners, and executives often overlook a more dangerous threat to their long-term financial stability—their own disability. What is the risk that the average individual will suffer a disability? According to marketing materials of more than one life insurance company:
“Probability of at least one long-term disability (90 days or longer) occurring before age 65 is: 50% for someone age 25; 45% for someone age 35; 38% for someone age 45; and 26% for someone age 55.”
Inadequate disability income insurance coverage can be more costly than death, divorce, or a lawsuit. Responsible financial planning includes planning for the best possible future while protecting against the worst possible events. No one ever plans on becoming disabled—though half of those aged 25 will have a disability of three months or longer at least once. This chapter explains not only why you need disability insurance, but also what to look for in a disability policy.

The Need For Disability Insurance
In our opinion, the disability of the family breadwinner can be more financially devastating to a family than premature death. In both cases, the breadwinner will be unable to provide any income for the family; however, in the case of death, the deceased earner is no longer an expense to the family. Yet, if the breadwinner suddenly becomes disabled, he or she still needs to be fed, clothed, and cared for by medical professionals or family members. In many cases, the medical care alone can cost hundreds of dollars per day. Thus, with a disability, income is reduced or eliminated and expenses increase. This can be a devastating turn of events and can lead to creditor problems and even bankruptcy.
If you are older (near retirement) and have saved a large enough sum of money to immediately fund a comfortable retirement, then you probably don’t need disability income protection. Of course, you may have some long-term care concerns, but that is covered in the next chapter. On the other hand, if you are under 50 years old, or if you are older than 50 and have several pre-college age children, you should consider the right disability insurance a necessity. The challenge is determining what type of disability income policy is “right” for you.

Employer Provided Coverage Often Inadequate
If you are an employee of a university, HMO, or other large corporation, your employer may provide long-term disability coverage. The premiums are probably discounted from what you would pay for a private policy. We advise you take a good look at what the employer-offered policy covers, and buy a private policy if you and the insurance professional on your advisory team decide you need it. For many people, this makes a lot of sense because employer-provided group policies are often inadequate. They may limit either the term of the coverage or the amount of benefits paid. For instance, benefits may last only a few years or benefit payments may represent only a small part of your annual compensation. Since this is most commonly an employer-paid benefit, the money received during your disability will be income taxable to you. For most, this arrangement would result in your taking home less than half of the original amount in your paycheck after taxes are paid!

Give Yourself a Check-Up
Most people with employer-provided disability insurance coverage will find the benefits inadequate. To help you determine where your existing coverage may be lacking, we have provided some questions for you to ask when you are giving yourself an insurance check-up. When you are ultimately working with the insurance professional on your advisory team, you should keep some of these questions in mind as well. They will help you better compare coverage options from different companies so that you can find the best policy for your specific circumstances and goals. Below are a list of some questions you should ask yourself as well as short explanations of the appropriate answers:
· How long does the disability coverage last?
· How much is the benefit? (Some plans may cap the benefits at $5,000 per month)
· What percentage of your income is covered? (Generally, you cannot receive more than 60% of income and the benefit is capped at $7,500 or $10,000, depending on your age). Though most group LTD plans are good for the purpose that they serve, they are only a partial cure. Because of the limitations or ‘cap,’ they have a built—in discrimination against higher income employees—like you!
· Who pays the premiums? (TIP: If you pay the premiums yourself, and not as a deductible expense through your business or practice, your benefits will be tax-free.) You may be seduced by the income tax deduction of the premiums, but the extra tax burden today is much easier to swallow than the tax burden will be if you suffer a disability and have a significantly reduced income and increased expenses. When you and your family need the money the most, you will have more.
· Is the policy portable, or convertible, to an individual policy if you leave the group? If so, do you maintain your reduced group rate?
· If your business distributes all earnings from the corporation at year-end in the way of bonuses to all owners/partners (typical of C-corps as a way to avoid double taxation), you should see whether these amounts are covered by the group policy. If not, and if bonuses or commissions make up a substantial part of your income (which we have seen to be the case with many people), you’ll More

The Popular Press Hurts Doctors

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Most people believe that there is more financial information available on television, in newspapers and magazines, and on websites than one person could possibly review in a lifetime. They may be right!
Our Google search for “Financial Advice” on August 11, 2007 yielded 112 million results. A search for “investing” yielded 104 million results. We then narrowed our search for sites that had all of the following tags: “investing,” “high income,” and “financial planning.” This narrowed the results down to 133,000. Obviously, we agree with the sentiment that there are an almost infinite number of places one can look for financial advice. However, who is this advice for? Consider this statement:
Most financial information available in newspapers or magazines, on television, or within websites is inappropriate and often detrimental to a Doctor’s planning. How can there be so many places to find financial information and so few reliable sources for Doctors? To answer this question, let’s start by looking at a list of television stations, newspapers, magazines, and websites. Which of these outlets would you consider to be for Doctors and which would you consider to be directed at Average Americans?
Television: Fox News, MSNBC
Newspapers: New York Times, USA Today, Wall Street Journal
Websites: FoxNews, CNN, CNNMoney, USAToday,
WSJ (Wall St. Journal.), Forbes
Magazines: Smart Money, Money, Business Week, Fortune, Fortune Small Business
If you are like all of the colleagues and clients we asked informally, you would say that almost all of the aforementioned media would deliver information which would target wealthier Americans, such as Doctors.

The important point we are trying to illustrate with this data is that almost all of the high-end magazines and websites in the first list have an average audience household income of less than $100,000. Every single one mentioned on that list, except The Wall Street Journal (TWSJ), has an audience with an average household income of less than $150,000.
For the purpose of our next statement, we would like to exclude TWSJ. Though TWSJ focuses on business and financial markets, its primary goal is to report the news. It does not take a position of encouraging or promoting any particular products, strategies or financial philosophies. Given this caveat, our conclusion from the aforementioned data is:
Even the highest level media outlets in the United States are not targeting and delivering appropriate content to an audience with an average income above $150,000. Why is this information important to our discussion of financial planning for Doctors? Let us explain what we learned from the publishing of our last book, Wealth Protection: Build & Pre-serve Your Financial Fortress for John Wiley & Sons.

The Media Business: “Get The Eyeballs”
If you are in the media business, it doesn’t matter if you are publishing magazines or websites, or producing television or radio programs. The goal is always the same if there is advertising involved—provide content that will attract a large enough audience to generate ad revenue. You generate ad revenue by proving that you can deliver a significant audience and that you can accurately track the demographics of the audience. All of the sites, magazines and newspapers mentioned earlier are in business to make money. If they don’t generate content that maintains
an audience large enough to support the necessary ad revenue, the company will go out of business. They must “get the eyeballs.” Their business model is really that simple.
To attract a large audience, these outlets have to deliver content that appeals to a large audience. After writing our last book for John Wiley, we appeared on over 120 radio and television programs. Though the book Wealth Protection had interesting philosophical lessons and over 62 practical lessons on advanced financial, legal, and tax-saving techniques, almost every producer and interviewer wanted us to discuss topics in the book we thought were the most basic. What we were told by one host was that his goal was to keep as many people as possible interested in the interview. He didn’t care if the information was fresh and exciting. He wanted to make sure that “Joe Lunch-Bucket” (his words) wouldn’t be put off by the topic. He told us that talking about ways to save $100,000 in taxes or ways to efficiently buy rental properties would alienate most listeners—which, in turn, would cause the show to lose “eyeballs” (or “ears,” as is the case in radio). He was not going to allow that to happen.
Until John Wiley asked us to write a book about Affluent Americans (Wealth Secrets of the Affluent—publishing date April, 2008), we had received very little interest from the popular press in regard to the education we have regularly offered to high-income clients for the last twelve years.

Consider the following:
· Every information/publishing company is in business to make money.
· The money almost always comes from advertisers.
· Advertisers pay more if the audience is larger.
· A publisher must continuously offer appropriate content to the masses to maintain and grow an audience and attract advertisers.
· Even the high-end distribution channels don’t target consumers earning over $100,000.
If you consider these five statements you can clearly conclude that:
It is almost IMPOSSIBLE for Doctors to find useful and appropriate financial information from popular newspapers, magazines, websites, or television programs. This is why most of the information contained in this book may seem foreign to many readers. The tips, tools, and strategies offered here are not the kinds of things that most information outlets would ever deliver because, quite frankly, there is no business reason for doing so. Fewer than 10% of Americans would find much of the information in this book applicable or beneficial. If it is important to “fit in” and do what everyone else does—even if it is not the best course of action—this book is not for you.

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