How Much Insurance I Personally Own as a Financial Advisor
As a CERTIFIED FINANCIAL PLANNER® and career firefighter, I spend a lot of time expecting the best and preparing for the worst. Pre-planning for life’s curveballs is just like preparing for the fireground - we should control the things we can control and prepare for the things we can’t control.
RIT is a perfect fireground example. No one likes being assigned to RIT, but we know from the Mayday Project that 7% of the time they rescue a firefighter who is in trouble. As a result, we need to spend time preparing for the fundamentals of firefighting (stretching lines, forcing doors, etc.) AND preparing for the high risk/low frequency events that are beyond our control.
I want to share what I personally do when it comes to protecting my family because I’ll never recommend something to you that I wouldn’t do myself. In each section, I share what is common for firefighters across the country, a rule of thumb that applies to most of us, and the reason behind the coverage that I personally carry.
Life Insurance: Protecting My Family’s Future
If something happens to me tonight (on or off the job), I want my wife and kids to have options. I want their lifestyle to stay the same and I want them to know I was thinking about them whether I’m here or not.
Despite feeling bulletproof, firefighters have some of the highest rates of death, injury, and illness of any occupation. Numerous studies have shown that we are twice as likely to be diagnosed with various types of cancer as the general population at a younger than average age.
What's common: Many firefighters have only $50K of employer-sponsored life insurance, which is barely enough to cover your final expenses.
Rule of thumb: There are plenty of complex calculations you can do to determine the amount of life insurance you need. The results are often 10-15x your income, especially while you have a young family. For many firefighters, that’s enough to pay off your mortgage, fund kids’ education, replace years of future lost income, and ensure your spouse retires as they originally planned.
What I have: I carry 7x my income in a 20-year term life insurance policy and 7x my income in a 30-year term life insurance policy. My primary need for life insurance is over the next 20 years – my kids will be out of the house, my pension will be vested, etc., but it makes me feel really good to know I’m covered for 30 years. Colon cancer runs in my family, and I think I’ll find peace in knowing my wife will have a large check deposited in her account if I die before I reach my late 60’s.
I’ve purchased policies that have the best “term conversion privileges.” A conversion privilege is the ability to switch to a different type of policy without a new medical exam or proving insurability. For example, up until the 20th year of my term policy, I can convert to an indexed universal life insurance policy if I decide I’d like to have a permanent death benefit. This is an extremely valuable feature because many people struggle to qualify for coverage at a reasonable rate in their 50’s and beyond due to issues in their medical history.
Unless you have an underlying condition, term life insurance is dirt cheap to lock-in while you’re in your 20’s, 30’s, and 40’s. For example, I qualified for Preferred Plus underwriting when I purchased 30-years of “level-term” insurance – this means I received the best rate possible, and my rate will never increase the entire time I own the policy. I’ve declined Veteran’s Group Life Insurance and the supplemental life insurance offered through my employer because both types of coverage are more expensive than my term life insurance and continue to get more expensive every 5 years.
Life insurance doesn’t replace you, but it does provide a way to guarantee everything you’re working for still happens for your family if you die young.
Long-Term Disability: Protecting My Income While I’m Alive
We tend to think more about line-of-duty deaths than long-term injuries or illnesses. But the truth is, you’re much more likely to become disabled than to die early.
What’s common: Many firefighters count on workers’ compensation and/or a disability pension if they are unable to work. Unfortunately, lots of pension systems have different classes of disabilities that will leave you with a fraction of your pre-disability income if you are no longer able to work as a firefighter.
Rule of thumb: Carry enough long-term disability coverage to replace at least 60% of your income with an “own occupation” definition of disability. An own occupation policy defines disability as the inability to perform the duties of a firefighter– as opposed to an “any occupation” definition of disability, which will only pay if you are unable to perform the duties of any occupation.
What I have: I’ve purchased a “multi-income” long-term disability policy that will pay a monthly benefit after I’ve been unable to work for 90 days. “Multi-income” means my policy will replace fire department income and the income I earn as a financial advisor – this is important for any firefighter who is the primary breadwinner and who works a second job on their days off. Through my long-term disability insurance, I’m able to set a floor for my income. Whether it’s a career ending injury or an illness like cancer, my income will not fall below the threshold that I’ve set.
If your department’s disability benefit isn’t enough to cover at least 60% of your income, a supplemental, individually owned policy can fill that gap. The harsh reality of becoming disabled is you don’t just cease being a financial asset for your family – you become a financial liability. I can’t imagine being disabled and watching my wife try to make ends meet for our family, so I’ve guaranteed that will never happen by protecting my income with a long-term disability policy.
Umbrella Insurance: Protecting Against the Unexpected
Another potentially ruinous risk is being sued because of an accident, a visitor injured on your property, or some random event you couldn’t foresee — an umbrella insurance policy is what can prevent a legal judgment from wiping out your savings and investments.
What’s common: Many firefighters have $100K-$500K of liability coverage through their homeowner's insurance policy and the state minimum on their auto liability insurance. The Indiana state minimum for auto liability is 25/50/25 - $25K bodily injury per person, $50K bodily injury per accident, and $25K for property damage. If you cause damage exceeding these amounts, you are personally responsible for the difference. Your insurer will pay up to your policy limits, but you will have to pay any costs that go beyond those limits out-of-pocket. This could result in being sued, having your assets seized, and facing wage garnishment.
Rule of thumb: Your home and auto insurance liability coverage should at least match your total net worth. For example, if you have a net worth of $1.5M but can only purchase $500K of liability coverage through your homeowner’s policy, you should own at least $1M in umbrella coverage. Umbrella coverage works by providing an extra layer of liability protection on top of your existing home and auto policies, kicking in only after the liability limits on those underlying policies have been exhausted.
What I have: I’ve maximized our home and auto insurance liability coverage and purchased an umbrella policy that exceeds our total net worth. It only costs a couple hundred dollars a year as umbrella policies can be bundled with home and auto insurance policies from the same provider. Doing so is often encouraged as it simplifies your coverage and can lead to multi-policy discounts.
An umbrella policy can protect your assets, investments, and future wages from large lawsuits or claims for bodily injury, property damage, slander, or false arrest. This insurance acts as a crucial financial safety net when the liability limits on your other policies are exhausted, preventing devastating out-of-pocket costs that could bankrupt you.
Final Thoughts
When it comes to insurance, we’re not insuring against every inconvenience. We’re insuring against what would be catastrophic - the events that would completely derail your family’s financial future.
That’s how I think about it:
If I died tonight, my wife and kids could continue our current lifestyle indefinitely
If I got hurt and couldn’t work, our bills would still get paid
If something unexpected happened that led to a lawsuit, we’d be protected
Those are the big three risks most people can’t afford to ignore. I’m not saying everyone needs the exact same coverage I have, but I am saying everyone should take the time to run through these “what if” scenarios and insure against the risk factors that you cannot control. As firefighters, we prepare for the worst every shift — financially, we should do the same.