Disability Insurance Primer

Insurance. A less than fun topic with potentially debilitating consequences for avoiding it. Anything involving "what if" scenarios is tough given the normal human desire to avoid challenging topics and tendency to think that "it won't happen to me".

While uncomfortable, insurance discussions are both necessary and should provide a sense of relief given the act of creating a solid plan that answers those "what if" questions. Disability insurance covers you in the event that you become disabled and unable to work. Sometimes a disability is temporary (i.e., there is an illness or accident but recovery is possible); at others it fundamentally alters your lifestyle and ability to work in the future.

The main question to ask is could live without a pay check if you became disabled? And for what amount of time? For a reader who has a hefty trust fund or is supported by her husband's lucrative job, the answer is likely "no". (Although her husband should most definitely answer yes.) For many LMF4HMWs, however, disability insurance is a both a necessary evil and a very smart move.

The good news is that many employers offer a policy as an additional benefit. Sometimes it is automatic; at others you need to opt in. If you are covered, the next step is to figure out the amount of coverage, which is often less than you would truly need -- for example, 60% of your salary. With a supplemental policy, you can cover more, closing the income gap, but no policy will cover 100%. (This would remove any incentive to recover, right?)

Another important aspect of a disability benefit is the coverage time frame, which is typically a set number of years or until retirement. You should also figure out if there is a tiered system whereby you have short-term coverage for the first weeks or months and then long-term coverage, and what the payment differences are, if any. The amount of time for which you are seeking additional coverage will affect the policy premium, so if you have adequate short-term through work, there is no reason to double up with supplemental.

For the pioneering self-employed, the only option is an individual policy. You'll want to be sure it adequately addresses short-term needs, if any (perhaps you have cash savings which could cover these), and long-term benefits.

Below are some websites on which to do some initial research:
http://4-disability-insurance-quotes.com/
http://www.disability-insurance-update.com/

In closing, I may be pointing out the obvious, but the time to seek coverage is before there is a problem -- while you are healthy and working!

WINE PAIRING: How about a zippy Garnacha, A.K.A. "Grenache", the most widely planted grape in Spain and a major contributor to Rioja. With black fruit flavors and toasty notes common from oak aging, they are usually best enjoyed in their healthy youth.

Program Interruption...

DISCLAIMER: If you aren't mad when you watch the below linked video, you are seriously deranged. And may suffer from "over feeling syndrome", lack of logical reasoning, and general inability to separate ideals from reality.

This week I'm supposed to focus on disability insurance. While it's an important topic, I just can't shake one of the more stupid and shocking comments I've heard from a reporter in the last year. While driving to a meeting listening to Portland area's more conservative (yes, that's a rarity on the West Coast) morning radio show, a "financial reporter" commented that he "wasn't sure how to read the economy given conflicting data. He went on to offer surprise that "despite gains in the Dow Jones, housing foreclosures are at a high".

There are so many flaws with this report that I'm not sure where to begin. First and in general, economic reports tend to be backward looking -- i.e., they report on findings, or what has been viewed in the past, so therefore they aren't necessarily indicative of future performance. Second, he tries to base economic outlook on two uncorrelated measurements -- the DJIA, a poorly constructed index measuring performance of 30 stocks (hardly representative of the US economy), and housing foreclosures, a problem exacerbated by over zealous lending policies and... you didn't guess it... uber liberal policies that increased in the Clinton era but began years earlier... (FYI, I don't post this link as a political statement, just providing some background and another angle that by the way never was and never will be reported in the mainstream media).

As someone who has lived abroad in one of the world's more liberal countries -- France, I'm still dumbfounded on an almost daily basis when I watch French News and see a less biased, more fact-based reporting style in the media. Now I'm not blaming the US media for problems -- that's too generalist and doesn't recognize the good reporting that is done, but I am arguing that politically, we tend to have one view and that anything else is "fringe" and relegated to the Fox network.`

I'm not blogging as a politico but I am suggesting that we all take responsibility for the news and educate ourselves so that stupid, uneducated reporting -- whether it be on conservative, non-partisan, or liberal channels be recognized as such.

WINE PAIRING: Nada. we all need to sober up to this problem. Why is it that math, science, art and English are required but that someone can be graduated from high school and college without any financial education?!!

Life Insurance

I recently heard yet another story of a family's tragedy being compounded due to lack of life insurance coverage. In this terrible story, a father committed suicide, leaving his wife and son without a policy and piled high with debt. I don't want to get into a post about the morality of suicide, but I do want to use this example to highlight the importance of insurances in a several part series. Today's post is on life insurance.

A LMF4HMW reader may or may not have a need for life insurance depending on the stage of life she's enjoying. When I was single, without children and had no debt, I had no need for life insurance. (My 401(k) assets would have covered my debts and funeral costs.) Since I am now married (still no kids) and contributing to a household, I should consider a life insurance policy if my husband would suffer financially should I pass (i.e., his income alone wouldn't cover the mortgage, etc.). At this point it still doesn't make sense for us, but every situation is different.

The time to truly consider life insurance is when a family welcomes a child so that should the unthinkable happen, there are ample funds available. (There are exceptions if a significant amount of wealth has already been accumulated -- i.e., the child has a trust fund, but for most people that's sadly not the case!) Another case would be having a dependent who isn't a child such as a sibling or parent. There are a multitude of myths surrounding life insurance, one being that you "should get life insurance while you're young" since it's less expensive. While the statement is technically true, on this note I would have paid into a policy for the past 10 years which would have easily rendered any savings in my 30's moot.

There are two basic types of life insurance, whole and term. Whole is a combination of insurance plus an investment. Upon the death of the holder, the contract will pay the stated amount. The investment portion may be borrowed against or used in other ways. Term life insurance has a duration limit on the policy period and pays the amount unless it first expires. Some term policies will let you renew. The key with all types is to evaluate your particular situation and needs -- here's a good starter article.

Many insurance purveyors will try to sell you whole policy stating that having an investment plus insurance policy is a better benefit. The truth is that these are much more expensive policies and that insurance needs change over time. The key is buying what you need - not what someone is trying to sell you. For most people, term life insurance is all that is needed.

Dave Ramsey, a bright and straight-talking radio show host, has a website recommending endorsed local providers. Check it out and call someone this week to discuss your needs:
http://www.daveramsey.com/sa/insurance/

Next we'll cover disability insurance.

Another Mark of Brilliance!

"... Raising taxes at any time risks economic damage, but never more so than during recessions. Higher taxes shrink the return that investors and workers receive in exchange for their risk-taking, creativity, and productive efforts. So the inevitable consequence of higher taxes is less investment, entrepreneurship, and work.

During normal or booming economic times, growing demand from consumers -- and investors' eagerness to invest -- means that higher taxes are more easily endured. It's not that raising taxes even during boom times doesn't discourage some risk-taking and entrepreneurship; it does. But the general good health of the economy is often sufficient to swamp the ill consequences of higher taxes.

In bad economic times matters are very different. Businesses are losing customers and investors are sitting on the sidelines. Higher taxes, by cutting even further into businesses' falling profits, only fuel more economic pessimism. During recessions, there's no general economic vibrancy to balance out the profits lost to higher taxes. So raising taxes only amplifies entrepreneurs' and investors' pessimism.

Indeed, raising taxes during a recession likely does more than amplify producers' pessimism only for the duration of the downturn. By signaling to entrepreneurs and investors that the government is economically tone-deaf -- by revealing the government to be desperate to maintain its revenue stream even when many of the rest of us must struggle with reduced incomes -- raising taxes during a recession tells the world that the tax-addicted government is especially unfriendly to markets...

As the late Nobel economist Milton Friedman pointed out, 'No one spends someone else's money as carefully as he spends his own.'"

This sheer brilliance came from Donald Boudreaux in the Richmond Times Dispatch. I certainly can't say it better so I'll offer a brilliant wine pairing: a cool, crisp New Zealand Sauvignon Blanc, brilliant yellow straw color, perhaps with some lime green tints, and a refreshing taste of citrus, grapefruit and perhaps white flowers!

Want to Stimulate Job Growth?

THEN CUT CORPORATE TAXES! Who reading knows what the U.S. corporate tax rate is these days? Are you guessing 25%? maybe 30%? Wrong.

Next question: how high is our rate relative to other similar competitive and developed countries? Think it's comparable? Guess again.

Out of countries belonging to the OECD, the Organization for Economic Co-Operation and Development, the U.S. has the second highest corporate tax rate at 39.1% after Japan's 39.54%! Nearly 40% in taxes just to create jobs, goods and services!

Lots of talk these days about "stimulating the economy", but mostly action that is doing just the opposite. Keeping corporate taxes high, or disincentivizing job creation, for one. Interestingly, most OPEC countries, even the most socialist leaning, have been cutting their corporate tax rates. That, along with allowing ours to creep up, is how the U.S. ended up on the wrong side of the spectrum.

Further, there's lots of talk in our country right now about NEW taxes, and not so much about lowering taxes. Most often, the debate is about which sized "man" to tax -- the "big man", the "middle class man" or the "least advantaged man". Who's looking out for the very large companies that are paying the bulk of the taxes in the country (i.e., much more than individuals relatively)?!!

How can you continue to raise taxes on the very people creating jobs and ask them to create more? In the great words of Will Ferrell, "I feel like I'm taking crazy pills!"

Wine Pairing: Grab a Gruner (i.e., Gruner Veltliner) -- these crisp, citrus prominent Austrian white beauties are not only delicious, but support a country with a much lower corporate tax rate of 25%!

You Know it's Bad When the French...

are making fun of your tax policies! Today, I read an article in France-Amerique, "To promote tourism, the Americans want to... tax tourists".

The Travel Promotion Act of 2009, currently a Senate bill, would tax each U.S. visitor $10 and then use the funds to promote the U.S. as a choice tourist destination. To help them, since I'm a marketing professional, I've offered a complimentary sample advertising campaign below:

Scene imagery: Goofy, fat American in jeans and tennis shoes pictured at one of our finest cuisine destinations, a drive-thru.

Copy: "Hey all y'all foreigners, we really want your tourism dollars, so please come visit! Be sure to speak English 'cuz if you don't, we'll just talk louder. Also, try not to be shocked at how big we are -- we're not fat, we're just big boned.

You're going to have so much fun here. Oh yeah, one more thing -- we've designed a program to promote our country that, well... you're going to pay for. See you soon! "

This is like me invoicing my clients for my marketing and promotional costs. Very, very stupid. Shocking, in fact. What could possibly be more stupid than taxing the very tourists you're trying to attract?!! The only explanation that I can muster is a "miscommunication." Perhaps the conversation went something like this:

Senator X-D: "My constituents are suffering decreased business and civil revenue due to a decline in tourism. We should figure out a way to increase tourism... so I can get re-elected. Uh... did I say that last part out loud?"

Senators Y-D, Z-D, A-D and B-D: "Yeah, we just heard our favorite word, 'increase'! This is perfect: we can raise tax revenue without taxing our constituents! What could be wrong with that?"


I love how the article author writes (translated, of course), "The US Travel Association doesn't find it ironic that it's trying to finance a campaign with dollars from the very people it's trying to attract. Instead, it insists that other countries are doing it so they should, too." Did anyone actually determine if this worked in those countries before proposing it? Possibly consider offering any value-add to those coming here? Here's the scarier question: do they even care?

I smell yet another typical big government, big spending move to create yet another office employing people who aren't compensated based on performance. They just spend -- they don't have to create a budget and likely have no accountability for results.

Bottom line: I stand by my recommendation that all running for office (i.e., using our tax dollars) should have to have taken and earned an A in accounting, finance and economics before becoming eligible.

Wine pairing: French rosé, of course! It's hot and this is the perfect summer sipper. Pair it with some olives, Parmesan cheese and a pretty sunset.

Business Meal Tax Deduction Increase - Bill Introduced

There is potentially good news for small business owners and the restaurant and travel and tourism industries. Yesterday, Representative Neil Abercrombie (D-Hawaii) and Senator Daniel Inouye (D-Hawaii) introduced a bill to increase the business meal tax deduction to 80% from its current 50%.

Doing so will allow business owners to gain back more of this tax break which before 1993 was fully deductible. The bill is especially important for small businesses, who often use restaurants as mobile "offices" since many work out of their homes (some 52% including me). Furthermore, it will stimulate much needed economic activity in two sectors that have been hit hard by this tough section of the economic cycle.

Why should a LMF4HMW reader care? It is important to remember that small businesses, defined by the US Small Business Administration as having fewer than 500 workers, employ more than half of the private sector. These firms have generated 60-80% of the jobs created in the last decade. And they represent nearly 100% of the businesses in the U.S.!

Besides, people get tax credits for having kids (assuming they don't "make too much money). As long as we have this system (I'd vote for an across the board 10% flat tax where we do away with all deductions, thousands of forms and the majority of the expenses of running our current set up), we should be figuring out ways to help small business, not tax them out of business.