William and Sally Morris recently got married and moved to your area. They are both 28 years old. Neither one of them has ever done any financial planning on their own, but they know they need to begin to look at the big picture. William just finished his graduate degree in accounting and has been offered a job at Howie, Cheatem and Wen, P.C. as an accountant where he will start next week. His starting salary will be $85,000. He has $50,000 of student loans with a monthly payment of $400. They recently purchased a new home and signed a 30-year mortgage for $175,000 with a monthly payment of $1200. Sally is finishing up her residency in family medicine and will be starting her own family medicine practice next year. She earns $45,000 as a resident physician, but she expects her income to be approximately $200,000 once she opens the practice. They are already trying to have children and are hoping to have at least two in the near future. Howie, Cheatem and Wen offers a 401k plan with a dollar-for-dollar match of 4% and a 5-year graded vesting schedule at 20% per year. William cannot participate in the retirement plans until he has been there for one (1) year. They have a group term life insurance policy that automatically covers William for 2 times his annual salary, subject to the normal eligibility requirements of group plans. He has the option of purchasing additional group term life insurance of up to 5 times his salary. His firm also offers a group long-term disability plan that will provide 40% of salary if he is totally disabled. Sally has no life insurance. They have done a budget and will need $3000/month after taxes for essential needs (this includes the mortgage and student loans) and an additional $2000/month after taxes for discretionary needs. They file their taxes as a married couple filing jointly. They have come to you to seek advice on how to get started moving in the right financial direction. Assume the rate of inflation equals the discount rate.

1. They first ask you about his Long-Term Disability Insurance coverage:

1. Why might you recommend that William purchase individual long-term disability?
2. What sort of definition of disability would you recommend he choose and WHY?
3. How much additional coverage should he buy and WHY?