Planning for Your Future as a Physician…

“The Basics Every Resident Should Know”

Presented by:

David L. Bailin, ChFC, CLU, CLTCPersonal Wealth Strategies for Physicians2620 Whitehorse Hamilton Square RoadHamilton, NJ 08690Phone (609) 586-9308Email david.bailin@personalwealthstrategies.com

•Securities and Investment Advisory Services offered through Securian Financial Services, Inc., Member FINRA/SIPC, A Registered Investment Advisor. Personal Wealth Strategies for Physicians is independently owned and operated. David Bailin is a Registered Representative and Investment Advisor Representative of Securian Financial Services, Inc.

•David Bailin nor Securian Financial Services, Inc. provides specific tax advice. Please consult a tax professional for specific tax information.

0550-2006-18168 DOFU 4/1/06

The Need for Responsible PlanningWhat If You Were to Die Today?

Many individuals recognize the benefits of financial planning. A financial Many individuals recognize the benefits of financial planning. A financial plan often uncovers problems, and frequently provides the motivation plan often uncovers problems, and frequently provides the motivation to make needed changes. For the most part, the issues involved in to make needed changes. For the most part, the issues involved in planning are positive and enjoyable (e.g., retirement, well-educated planning are positive and enjoyable (e.g., retirement, well-educated children). children).

However, planning for the unexpected – known as risk management – can However, planning for the unexpected – known as risk management – can be less pleasant. A key part of risk management is answering the be less pleasant. A key part of risk management is answering the question, “What if I were to die today?” Preparing for an untimely question, “What if I were to die today?” Preparing for an untimely death is often referred to as “survivor benefit planning.” A subset of death is often referred to as “survivor benefit planning.” A subset of estate planning, it addresses the need to keep one’s family in their estate planning, it addresses the need to keep one’s family in their current world, financially.current world, financially.

Understandably, no one likes to contemplate his or her own demise. For Understandably, no one likes to contemplate his or her own demise. For some, death seems a distant, future event. Others are simply too some, death seems a distant, future event. Others are simply too “busy.” Whatever the reason, delaying this part of planning can result “busy.” Whatever the reason, delaying this part of planning can result in expensive, unintended, even tragic consequences.in expensive, unintended, even tragic consequences.

The Need for Responsible PlanningWhat If You Were to Die Today?

Survivor Benefit NeedsSurvivor Benefit Needs

The ultimate purpose of survivor benefits planning is twofold: (1) toThe ultimate purpose of survivor benefits planning is twofold: (1) to

ensure that the ongoing income needs of the survivor(s) are met, andensure that the ongoing income needs of the survivor(s) are met, and

(2) To provide for immediate lump-sum cash needs.(2) To provide for immediate lump-sum cash needs.

▪ ▪ Income needs:Income needs: How much income will the survivors need, now and How much income will the survivors need, now andIn the future, to cover the following:In the future, to cover the following:

▫ ▫ Household living expenses: Household living expenses: Will the family stay in the Will the family stay in the same house? Can they afford to? Do they want to? Will same house? Can they afford to? Do they want to? Will

they they have the option?have the option?▫ ▫ Additional childcare: Additional childcare: Will there be a need for more Will there be a need for more

help help with young children?with young children?▫ ▫ Educational expenses: Educational expenses: Will there be enough money for Will there be enough money for

the the children to go to college?children to go to college?

The Need for Responsible PlanningWhat If You Were to Die Today?

▪ ▪ Lump-sum needs: Lump-sum needs: How much will the How much will the survivors need immediately and in cash?survivors need immediately and in cash?Consider the following: Consider the following:

▫ ▫ Final Expenses:Final Expenses: More than the funeral, More than the funeral, this includes unpaid medical bills which, this includes unpaid medical bills which,

after a long illness, can be substantial.after a long illness, can be substantial.▫▫ Estate settlement costs: Estate settlement costs: Probate Probate

expenses, attorney’s fees, death taxes, expenses, attorney’s fees, death taxes, etc.etc.▫▫ Mortgage payoff and debt reduction: Mortgage payoff and debt reduction: Will it be important to provide a paid-off Will it be important to provide a paid-off

house? Are there debts that should be house? Are there debts that should be retired?retired?

One Final QuestionOne Final QuestionIf you died today, would your If you died today, would your

plan be ready?plan be ready?

Types of Life Insurance Policies

In choosing the type of life insurance policyIn choosing the type of life insurance policyyou purchase, consideration must be given toyou purchase, consideration must be given tothe need which is being filled e.g., fundingthe need which is being filled e.g., fundingretirement needs, creation of an estate,retirement needs, creation of an estate,payment of estate settlement costs, (federalpayment of estate settlement costs, (federaland state death taxes, last illness and burialand state death taxes, last illness and burialcosts, probate fees, etc.), business buy-out,costs, probate fees, etc.), business buy-out,key-man coverage, etc.key-man coverage, etc.

Types of Life Insurance Policies

Decreasing TermDecreasing TermLevel premium, decreasing coverage, no cash value:Level premium, decreasing coverage, no cash value: Suitable for financial obligations which reduce with time; e.g., Suitable for financial obligations which reduce with time; e.g., mortgages, or other amortized loans.mortgages, or other amortized loans.

Annual Renewable TermAnnual Renewable TermIncreasing premium, level coverage, no cash value: Increasing premium, level coverage, no cash value: Suitable Suitable for financial obligations which remain constant for a short or for financial obligations which remain constant for a short or intermediate period; e.g., income during a minor’s dependency.intermediate period; e.g., income during a minor’s dependency.

Long-Term Level Premium TermLong-Term Level Premium TermLevel premium, level coverage, no cash value: Level premium, level coverage, no cash value: The annual The annual premiums are fixed for a period of time, typically 5, 10, 15 or 20 premiums are fixed for a period of time, typically 5, 10, 15 or 20 years. Suitable for financial obligations which remain constant years. Suitable for financial obligations which remain constant for a short or intermediate period; e.g., income during a minor’s for a short or intermediate period; e.g., income during a minor’s dependency. dependency.

Types of Life Insurance Policies(con’t)

Whole LifeWhole LifeLevel Premium, level coverage, cash values:Level Premium, level coverage, cash values: Cash value Cash value typically increases based on insurance company’s general typically increases based on insurance company’s general asset account portfolio performance. Suitable for long-term asset account portfolio performance. Suitable for long-term obligations; e.g., surviving spouse lifetime income needs, obligations; e.g., surviving spouse lifetime income needs, estate liquidity, death taxes, funding retirement needs, etc.estate liquidity, death taxes, funding retirement needs, etc.

Universal LifeUniversal LifeLevel or adjustable premium and coverage, cash values: Level or adjustable premium and coverage, cash values: Cash values may increase, based on the performance of Cash values may increase, based on the performance of certain assets held in the company’s general account. certain assets held in the company’s general account. Suitable for long-term obligations or sinking-funds needs: Suitable for long-term obligations or sinking-funds needs: estate growth, estate liquidity, death taxes, funding estate growth, estate liquidity, death taxes, funding retirement needs, etc.retirement needs, etc.

Calculating Your Crisis Factor

Monthly Budget _____________________

Savings _____________________

Factor _____________________

Other Sources Available

_____________________

OOddddss ooff DDiissaabbiilliittyy Insurance claims studies indicate that the odds of becoming disabled for 90 days or longer are much greater than dying during one’s working years. Studies also suggest that, as the number of business owners or key employees increases, so do the odds that one of them will suffer a long-term disability.

Probability of at Least One Long-Term Disability Prior to Age 65

Number of People in the Age Group Age 1 2 3 4 5 6

25 58% 82% 92% 97% 99% 99% 30 54% 79% 90% 96% 98% 99% 35 50% 75% 88% 94% 97% 98% 40 45% 70% 84% 91% 95% 97% 45 40% 64% 78% 87% 92% 95% 50 33% 55% 70% 80% 86% 91% 55 25% 43% 57% 68% 76% 82%

Note: Based on the 1985 Commissioners Individual Disability Table.

Determining Odds of Disability Among People of Different Ages

Use the following table and worksheet to determine the risk of a long-term disability among your business owners or key employees.

Age 25 30 35 40 45 50 55

Value .42 .46 .50 .55 .60 .67 .75

Step 1: For each owner or key employee you wish to include in your analysis, choose the value from the table above that corresponds to the age closest to the actual age of the owner or key employee, and include the value in the space below. Step 2: Multiply all of the values by each other to arrive at a single value.

_______ x _______ x _______x _______ x _______ = _______ Step 3: Multiply the single value by 100 to convert it to a percent.

100 x _______ = _______% Step 4: Subtract the single value from 100% to determine the odds of long-term disability for any one of the groups of owners or key employees in your company.

100% - _______ = _______ % Note: You can perform this analysis for any number of owners or key employees, not just the five shown in this

worksheet.

Individual Disability Income Insurance

One approach to the problem of a providing income during an extended One approach to the problem of a providing income during an extended period of disability is to purchase individual disability income insurance.period of disability is to purchase individual disability income insurance.

What to Look for in a Disability Insurance PolicyWhat to Look for in a Disability Insurance Policy▪ ▪ Definition of disability:Definition of disability: Are education, experience, and past earnings Are education, experience, and past earnings taken into account in determining whether the insured is qualified to taken into account in determining whether the insured is qualified to resume work? Many policies provide for an initial own occupation resume work? Many policies provide for an initial own occupation definition of disability, for a specified period of time, after which a definition of disability, for a specified period of time, after which a different definition of disability applies.different definition of disability applies.▪▪ Partial or residual benefits: Partial or residual benefits: Partial or residual disability benefits may Partial or residual disability benefits may be paid in some policies when the impairment allows the insured to be paid in some policies when the impairment allows the insured to perform only a portion of his or her duties. This provision may also pay perform only a portion of his or her duties. This provision may also pay benefits in the event the disability reduces the insured’s income by a benefits in the event the disability reduces the insured’s income by a certain amount ( for example, 20% or more) for pre-disability levels.certain amount ( for example, 20% or more) for pre-disability levels.▪▪ Cost of living adjustment:Cost of living adjustment: Is there a cost of living adjustment (COLA) Is there a cost of living adjustment (COLA) which would increase benefit payments after a disability occurs?which would increase benefit payments after a disability occurs?

Individual Disability Income Insurance

(con’t)▪ ▪ Cancelability and renewability of policy: Cancelability and renewability of policy: Except for nonpayment ofExcept for nonpayment ofpremiums, is the policy noncancelable or guaranteed renewable? Noncancelablepremiums, is the policy noncancelable or guaranteed renewable? Noncancelablegenerally means that the insurance company cannot cancel the policy, change thegenerally means that the insurance company cannot cancel the policy, change thepolicy provisions or increase policy premiums after issue, as long as premiums arepolicy provisions or increase policy premiums after issue, as long as premiums arepaid on a timely basis. Guaranteed renewable is similar, but allows the insurancepaid on a timely basis. Guaranteed renewable is similar, but allows the insurancecompany to increase the premium.company to increase the premium.▪▪Waiting and elimination period: Waiting and elimination period: Is the waiting or elimination period proper forIs the waiting or elimination period proper forthe insured circumstances? Commonly available periods may include 30, 60, 90,the insured circumstances? Commonly available periods may include 30, 60, 90,180 and 360 days. Naturally, the longer the elimination period one selects, the180 and 360 days. Naturally, the longer the elimination period one selects, thelower his or her premium payments will be. However, a person’s needs, cashlower his or her premium payments will be. However, a person’s needs, cashreserves and income sources should be the deciding factors in selecting a properreserves and income sources should be the deciding factors in selecting a properelimination/waiting period.elimination/waiting period.▪▪Benefit period: Benefit period: What benefit period should be selected? Since long-termWhat benefit period should be selected? Since long-termmedical disability can be financially devastating, one should elect a long-termmedical disability can be financially devastating, one should elect a long-termbenefit where possible. Some companies offer lifetime benefit periods, butbenefit where possible. Some companies offer lifetime benefit periods, butperiods as short as 24 months to 60 months are also available.periods as short as 24 months to 60 months are also available.