Understanding Insurance and the Role it Plays in Your Risk Management Plan

What’s your Risk Management plan?

Risk management is often thought of in terms of a business or property.  But what about your personal risk management?  In many ways, personal financial situations can resemble a business.  There are several ways to help manage risk, but today the focus is on a word many dread hearing…insurance.  Some may say it is a necessary evil.  While that may be the case, it’s important to understand what it is and the role it can play in protecting you and your family.

Protecting Your Family

Often, having life insurance in place protects your spouse and young children in case of an early or unexpected death.  Once some wealth is accumulated, the kids are grown and maybe the mortgage is close to being paid off, that insurance may not be necessary.  But where one risk may disappear, another could take its place.  Is your largest asset your IRA or 401k?  A life insurance policy can help pay taxes on distributions to heirs after your death.  Do you have a business or property that one child wants to inherit but another child does not want to be involved in?  Life insurance can create guaranteed liquidity for your family and help avoid the unwanted sale of the family business or property avoiding family disagreements.  Do you have a life insurance policy in place you don’t feel you need anymore?  The cash values can be used for retirement income or sold as a life settlement creating additional retirement assets.  

Protecting your greatest financial asset

What is your greatest financial asset? Many would say 401k, IRA or home.  And they would probably all be wrong!  The truth is an individual’s greatest financial asset is themselves and the ability to earn income.  The ability to generate income is responsible for funding 401ks and paying the mortgage.  While it is a critical component of our financial well-being, many are not aware how to protect it if you are not able to work due to illness or injury.  Many employers offer disability income insurance, but most employees are not aware how the coverage works.  How long and much is covered are important questions to ask.  Is the coverage provided by the employer enough to cover monthly bills if unable to work?  Are you a consultant or do freelance work?  You may not have any coverage and should look at getting your own policy that follows you from job to job. 

Protecting your financial legacy

As you head into retirement, there are many concerns you may have about protecting your retirement assets and income from a variety of factors.  Inflation, taxes and market downturns are the common primary culprits .  But a prolonged need for care at home or at a facility could, within a few short years, wipe out the assets you spent a lifetime accumulating.  When it comes to covering the costs of long-term care, people will sometimes say “Medicare will cover it” or “the state will pay for it”.  While there may be some truth to that, there are limitations to both scenarios.  Does a long-term policy make sense?  It could be part of the solution, but understanding what is covered and what is not is an important first step in developing a plan to manage the risks.

Risk Management does not always mean buying insurance

Insurance exists for virtually every type of risk you may face.  If a potential for financial loss exists and you are willing to pay the premium, there is probably some type of insurance out there for you.  We touched on life, disability and long-term care insurance.  The reality is if we were to cover every possibly financial risk, we could become “insurance poor” very quickly!   Understanding your risk, the ways to reduce that risk and coming up with a plan that works for your situation are the keys to developing a risk management plan.  

Disclosures:

Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Apella Wealth provides this communication as a matter of general information. Any data or statistics quoted are from sources believed to be reliable but cannot be guaranteed or warranted.

Apella Wealth does not provide or sell insurance services and nothing either stated or implied here should be inferred as providing such services.