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Why you should buy life and disability insurance at the same time

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Disability and life insurance protects your paycheck and lifestyle.

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

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You work hard to provide a comfortable lifestyle for yourself and your family. But if an injury prevents you from working, will you be able to maintain your lifestyle?

"If you don't make it home and someone relies on your income to live, you need life insurance," Mark Williams, CEO of Brokers International, told Insider.

Life insurance paired with disability insurance helps manage the risk of disability, illness, or death.

Insurance supports your plans and the unexpected

What are your goals for your career, family, and other individuals you are responsible for – even if you don't have kids?

"At the end of day, life insurance is risk management" to deal with "premature death, loss of income due to illness, or disability," according to Silvia Tergas, a financial planner with Prudential.

Tergas recommends using a small percentage of your income toward disability insurance and life insurance to insure your No. 1 asset: the ability to generate income in future.

What is life insurance?

Life insurance is a contract between you and the life insurance company. You pay premiums (monthly or annually) for a payout that your living relatives will receive, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.

There are two main types of life insurance policies to choose from: permanent life and term life. There are different types of term life and permanent life insurance products.

Whether you choose permanent life insurance or term life insurance, you will need to go through the underwriting process. This process is how the insurance company determines your insurability – deciding how much of a risk you are and how much of a death benefit you qualify for.

Your life insurance needs change as you age, and you'll need to consider children, marriage, divorce, retirement, and caring for aging parents. The best life insurance policy for you depends on your budget as well as your financial goals.

To maximize the benefits of life insurance, it's wise to include a financial advisor, accountant, and estates attorney in your decision-making process to ensure you have proper coverage that adapts as your life changes.

Term life insurance Permanent life insurance
  • Ends after a specified time frame
  • Includes death benefit
  • More affordable
  • Never expires
  • Includes a death benefit
  • Cash value that can be used during your lifetime
  • More expensive than term life in the early years of the policy

What is disability insurance?

To figure out whether you need disability insurance, the question to consider is: If you become ill or injured, how will you earn income to pay your bills?

Disability insurance is like insurance for your paycheck if you are unable to work. Just like you have homeowners insurance for your home and car insurance for your car, you should have disability insurance to protect your income.

When you are injured or ill and unable to work, disability insurance provides you with a percentage of your salary. There are two types: short-term disability and long-term disability.

Although many people probably have short-term disability through their employer, long-term disability insurance is the one that most people need and do not have.

For most people considering disability insurance, the focus is on long-term disability and how to decide between an "any-occupation" policy versus an "own-occupation" policy. You can use online calculators to determine how much disability insurance you need.

Short-term disability Long-term disability
  • Lasts for 13-26 weeks
  • Replaces 40%-70% of your base income
  • Short waiting period ("elimination period") before receiving benefits
  • Plans vary, typically from five years to retirement age
  • Replaces 40%-60% of base income
  • For most carriers, 90 days is the typical waiting period, but it can be shorter

Data from Guardian Life Insurance

Why get life and disability insurance at the same time?

According to Guardian Life, more than one in four of today's 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they retire. Guardian Life also notes that illness causes 90% of disabilities, while injuries accounts for the other 10%.

Life insurance protects your family in the event of your death. Disability insurance protects your income in case you become injured and unable to work. The worst feeling is thinking you have coverage, only to find out you don't or it isn't enough.

Life and disability insurance require going through the underwriting process, which can take four to six weeks. Underwriting is when the insurance company collects information about your health, job, income, finances, and other personal information to determine how much they will insure you and what your premium will be. It may require a medical exam, which includes the collection of a blood and urine sample.

Some insurance companies offer a disability rider that you can add on to your life insurance policy instead of having two separate policies. However, it may be more cost efficient to have separate policies.

Talk to your insurance specialist or financial advisor to find out what options work best for your financial situation and goals.

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Personal Finance

Retiring Early: 4 Principles of the FIRE Movement

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There comes a time in your life when you feel that you are ready to quit working and enjoy the fruits of your labor with a well-earned retirement.

If you have an entrepreneurial streak or simply want to generate as much income as possible, as quickly as possible, you will probably be a regular visitor to sites like journeytobillions for inspiration.

It may be that one of those ideas leads you to unlock the money you need to be able to retire early. You might also want to consider the principles of the FIRE movement, which is an extreme saving and investment movement that is designed to achieve a goal of Financial Independence and to Retire Early.

Here is a look at the key principles behind the FIRE movement.

Live for tomorrow

If you truly want to retire as early as possible you are going to have to make short-term sacrifices and adjustments to the way you live in order to achieve that goal.

A key element of the FIRE movement revolves around your ability to be financially disciplined with your money.

This means living as frugally as you possibly can so that you put aside as much of your income into savings and investments as possible. The target figure is to save 70% of your income and avoid debt as much as possible, or at least pay off your mortgage as a matter of priority.

The magic number that makes early retirement a reality is to be able to accumulate a net worth that is a multiple of at least 25 times your current annual spending.

A typical person who aspires to the FIRE principles manages to put aside somewhere between 25% and 50% of their monthly income.

Put your money to work

Simply putting your money into a savings account won’t get you to the finishing line of early retirement and it will probably mean that your wealth doesn’t keep pace with inflation either.

You need to grow your savings by investing in the stock market and taking calculated risks with your capital.

A tracker fund that follows the performance of the stock market would be a typical investment strategy, but it always pays to get professional guidance if you want to try and get the best returns.

Home ownership

You are never truly free to retire until you have paid off the mortgage and own a property outright so that you don’t have to make regular monthly payments anymore.

A key FIRE principle is to clear the mortgage as early as possible, even if that involves directing some of your savings to overpay the mortgage to clear it quicker.

Boost your income

It goes without saying that the more money you can earn each year the quicker you will be able to build up the sort of financial wealth and independence that will allow you to retire early.

Look at potential additional income streams such as so-called side hustles, which are extra jobs you do alongside your regular work.

Taking on part-time work or maybe starting your own business that can be run while you keep your full-time job can all help you get where you want to be at a faster rate.

Looking at your current financial situation, could FIRE be your route to early retirement?

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Personal Finance

A financial planner shares 3 pieces of money advice clients never want to hear

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Financial planner Don Grant.

  • After 20 years in the business, financial planner Don Grant says clients hate to hear three things.
  • First, you're not saving enough, either for retirement or your kid's education.
  • Also, you can't afford that much house, and you need to take on more investment risk.
  • Vanguard Personal Advisor Services

Don Grant has been a financial planner for nearly 20 years, which means for nearly two decades he's been having tough talks with people about their money.

"When I first meet with clients, I say, I'm often going to tell you things that you may not want to hear but I have to tell you," said Grant, who serves as an ambassador for the CFP Board.

Grant shared with Insider the top three pieces of money advice his clients never want to hear.

1. You're not saving enough

Grant works with clients at various life stages, and those nearing retirement age aren't happy to hear that they can't leave their jobs as soon as they want.

"I've had to bend a couple of people back to work for a couple of years," said Grant, who works as an investment advisor with Fortis Advisors in Wichita, Kansas. "When you're not putting away enough, we're not going to hit our targets, which means you could potentially outlive your savings."

Your financial planner can help you examine your income and assets as well as what you'll need after retirement to determine how much you should be saving and investing to maintain your lifestyle long after you've put in your papers.

If you have children, you also need to save money for their education – no matter how brilliant you think your kids are, said Grant (but not at the cost of saving enough for your own retirement).

"Susie is a great tennis player, but you still need to save for college," Grant said. "I have had a number of clients who have kids who are extremely talented athletes or great at academics and they think we're just going to get by on scholarships."

Think again – and start a 529 plan. Grant recommends saving about 60% of what you think your child's college tuition will be.



2. You need to take on more risk

You may be tempted to cash out your investments when the markets are down, but don't.

"Essentially, one out of every four years the markets are down, but the average recovery from a stock market crash is about 400 days," said Grant.

So, stay the course.

"We've got to trust the history of the stock market and other markets we're invested in," Grant said. And trust that your advisor has helped you invest wisely so you won't end up broke.

"They need to stay invested and they need to take on the risk to be able to achieve their goals."

For small business owners, this risk means being willing to stretch their investing beyond their own companies. Because entrepreneurs are already taking on risks simply by being in business, they're often leery of investing in the markets.

"When they give me money, they want to put it in CDs," Grant said. But last year's pandemic showed why it's crucial for entrepreneurs to diversify their investments.

"Small businesses got hit the hardest last year, and if there is a slow year, you may need to hit some investments you had in another place that did well," Grant said.

3. You can't afford that much house

Whether you're looking to buy your first home or your dream house, the mortgage isn't the only price tag you need to consider. Homeownership can be a great source of pride. But when you're spending your weekends fixing the deck, stopping leaks, mowing the lawn, or getting a new roof, you realize it also can take a toll on your time and money.

"It's an asset, but it's not creating any income for you. It's a drain," Grant said.

While Grant still believes homeownership is a good idea, he asks his clients to remember this: "Examining how much house you can afford has to do with all of the management and maintenance of the house, too."

All in all, Grant wants his clients to keep their eyes on the prize.

"The key to keeping on top of this," he said, "is have a plan, monitor that plan, and base your spending on what that plan tells you that you can do."

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Personal Finance

Watching my dad retire 10 years earlier than expected made me change my money habits in 3 ways

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The author, Liz Knueven, left, with her dad.

  • My dad is retiring 10 years earlier than he expected, and it made me change my saving habits.
  • I realized retirement doesn't always happen when you expect, so I increased my savings.
  • I also started looking into an HSA to save more for healthcare expenses later.
  • Want to share your retirement story with Insider? We're looking for retirees to profile. Send reporter Liz Knueven an email at [email protected]

My dad didn't expect to be leaving work in 2021 – he thought he had about 10 more years left. But, he decided to take a deal to retire 10 years earlier than expected.

He's always extolled the merits of 401(k)s and IRAs to my brother and me, and encouraged each of us to open them up as soon as possible. Since he taught us, I had to think he'd be totally prepared for retirement, even though 10 years early is a lot of time. Which made me wonder: If I were to leave work 10 years earlier than expected, would I be ready? My answer was likely a no.

So, I made three straightforward changes to how I'm saving and investing for later.

1. I upped my 401(k) contribution

No one adjusts their 401(k) contribution more than I do, and I keep increasing it whenever I feel the nudge. While I do it at least once a year, I felt another nudge when my dad told us the news.

Since it's hard to go wrong with saving more earlier, it felt like the right move. Retirement savings grow based on compound interest, where money saved earns money over time. Since I'm still relatively young, anything I invest now will have lots of time and potential to grow.

I like to think that I have control over a lot of things in my life, but my dad's sudden retirement was a good reminder that that's not always the case. Increasing my contributions even by a small amount made me feel like I was taking a step in the right direction.



2. I'm looking into an HSA

My initial reaction to my dad retiring wasn't, "What do you plan to do with your time?" After covering these topics as a reporter, it was, "What will you do about healthcare?"

Healthcare expenses are one of the biggest costs retirees will face. For my dad, who's retiring before he becomes eligible for Medicare at age 65, it's even more tricky. Getting affordable healthcare in the years between retirement and Medicare age can be a huge expense. (My dad will have insurance from his job for a while, and then he's prepared to pay for private insurance until Medicare kicks in.)

Not knowing what I'd do in this situation, I started looking into a Health Savings Account, or HSA. These accounts are a way to save more for medical expenses and healthcare costs both now and later on. The funds don't expire and can be invested for the long-term. They're tax-advantaged in three ways: Tax-free money goes in, grows tax-free, and withdrawals are tax-free.

3. I increased my IRA contributions, and automated the deposits

My dad's retirement is forcing me to re-think my own goals and how I'll get there.

In addition to increasing my 401(k) contribution, I realized I could do better with my IRA contributions. I wanted to be as consistent as possible, and contribute more. To do that, I modified my direct deposit to my IRA.

Instead of having one big chunk that comes out at the beginning or end of the month, I found that I'd be able to contribute more by putting in money weekly. That allowed me to increase what I'm saving overall.

While everyone's retirement is different, I hope that I can prepare myself well enough for my own to be as smooth as my dad's.

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