Risk Management & Insurance Planning

Issue 2 out of 13 in our Wealth Management Series

Hopefully, you found the Investment Planning entry of benefit. Now, let’s move from investment planning to a discussion of risk and insurance planning. From a practical perspective, what is Risk Management & Insurance Planning? It’s protecting you, your family and your wealth. There are myriad strategies, layers if you will, to protect your wealth. In broad strokes, insurance is the vehicle(s) being discussed in this space. However, which type of insurance? For what purpose? Pros? Cons? All important considerations. Most of our clients initially consider insurance as a tool for protecting their goals, their business, and their family. But insurance can be used independently or paired with other financial instruments to pursue and protect goals.

Insurance is a unique financial tool. Consider that there are no other financial instruments that can offer protection along with a savings option, and investment option, long-term care options, and the list goes on. There are four primary types of insurance: life, disability, long-term care, and liability. In addition to allowing protection of assets from loss or damage, it can also be used to solve both personal and business financial problems. Here are the questions you should be asking yourself? Most of our clients have some form of insurance. As there are various types and uses, along with limitations, a common refrain when asked to review your existing policies is “I already have insurance.” The short answer is “Good. Very smart.” The long answer is “Good. How often do you review those policies and make adjustments when your personal and financial situation changes?” These questions lead into a more holistic approach to risk management and insurance planning.

You might ask yourself “why is a wealth strategist writing about insurance?” We help people pursue and protect their financial and personal goals. Our commitment to our clients is to help them reach those goals. Consider when you purchased the policies you currently have. Has your family situation changed? Do you have more children or grandchildren now? Have you changed jobs or started a business or new practice? Think about your current policies and then consider:

1) Do I have the right amount?
2) Is it structured properly?
3) Is the cost appropriate?

How do these questions relate to the most common types of insurance?

Life Insurance

Life insurance alone can be used for liquidity for taxes, funds to transfer a business, replacement of a charitable gift/philanthropic objectives, reduction of debt and equalization of inheritances. All types of insurance should be assessed from three vantage points: adequacy of coverage, appropriateness of policies and cost-effectiveness. We often conduct an ‘efficiency analysis’ with our clients to address the questions above. Recently, we had a conversation with a client and asked when was the last time they conducted an ‘efficiency analysis on your life insurance? The reply, “what’s an efficiency analysis?” The answer went something like this: Have you known anyone who refinanced their mortgage in the past few years? Why did they take this action? Likely the answer is lower payments, costs, interest rate, etc. Wouldn’t it make sense to take the same approach on your life insurance? Our goal for our clients is to make sure their insurance structures are as efficient as possible. If you are a business owner or head of a professional practice, life insurance can be used to both retain and incentivize key employees as well as protecting your business. More on this topic in a future post.

Disability Insurance

Disability insurance is fairly straightforward, however, an extremely critical part of insurance planning. If you are a specialist/professional, have an acute issue and are unable to work (income producing duties of your specialty) it’s CRITICAL to have income protection insurance or said another way, wealth preservation insurance. The financial loss to you without disability insurance is likely catastrophic. For example, say you earn $500k and are 40 years old. What if you were disabled for 25 years? Your financial loss is $12.5MM. My guess is for most reading this blog entry, it’s more than their car and home…combined…times four. Yet, people routinely don’t hesitate to acquire car and homeowners insurance. It’s not close.

Long-term Care Insurance

Long-term care is interesting for higher net worth folks. Often, the statement made is, “I’m going to self-insure that!” As a result, if/WHEN incapacity hits, the costs are paid out of cash flow and accumulated net worth. Our approach is to take the following steps: Identify Potential Risk, Evaluate Existing Resources, Determine Potential Gaps (exposures), and Consider Strategic Options. The questions we typically ask are “what formal arrangements have you made to plan for incapacity?” Or “If without warning you couldn’t take care of yourself, what would be your ideal situation?” Or “Walk me through what would happen if something were to happen to you…” After addressing these questions and following a disciplined approach, one of two outcomes become clear: 1) Self-insuring will work or 2) Self-insuring will NOT work. How quickly would you want to know?


Liability insurance on a personal level is handled via your property & casualty agents, e.g. State Farm, American Family, etc. Our role as an advisor is to queue you to when increasing coverage is sensible. Think of this as your personal malpractice insurance. You are already familiar with the costs of insurance from your malpractice insurance and your liability insurance and those are in fact helping you protect your business and your family. Fewer people consider that you can use insurance to pursue goals as using insurance to protect their goals.

As you are able to discern, again, there are a lot of moving parts. The key is to take a disciplined approach of discovery and make certain to address the three questions noted above for each type of insurance in concert with one another.

Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor.  Cetera is under separate ownership from any other named entity.