Insuring the Pursuit of Financial Goals A financial plan that is lacking in proper risk management is only a financial wish, a “financial plan-ish”…sort of like a plan but really not. There are basically two questions a client has in their mind, “Am I going to make it?” and “Am I going to get blindsided?” Effective risk management addresses the latter. A portfolio, or plan review should ALWAYS include a review of insurance policies/needs….is there enough coverage, too much coverage, beneficiaries up-to-date, what has changed for the client, what the client wants to change etc. Although I was raised a city slicker, I have always held a special love for horses and have sought out their “company” when possible. It was most likely from this connection that created an analogy that I use, and sometimes overuse, “If you build a corral to protect your horses, would you use chicken wire? No. A 20-ft. concrete wall? No. It is our duty to minimize the risk to your “assets” by effectively utilizing our resources as we pursue your goals” good old fashioned horse sense. Let’s look at Life Insurance It is with a mix of sorrow and anger when Page 22
reading of a tragedy in the news and at the footnote is notice that a “Go Fund Me” account has been set up for the survivors/ expenses. Somewhere a planner failed or the victim failed to plan. Life Insurance is our Swiss Army knife while exploring the perilous path towards our financial goals. Life insurance can protect the obvious loss against an early demise but can also act as the great equalizer when used as a tool in legacy planning. Should there be an asset such as a family business, art collection, gun collection, classic auto etc. that will pass to a selected offspring than a life insurance policy can be used to offset and rebalance the distribution benefiting the other(s). In reviewing our client’s tax returns, as all good consultants do, we may notice an annual donation to a charity or alma mater. That donation can instead be turned into an annual premium to a life insurance policy that is owned by the cause, which is also the beneficiary, greatly increasing support while maintaining tax benefits. Why have a brick with your name on it when your client can have a building with their name on it. An inexpensive term policy can also be put in place to offset a market correction should one finally happen. When the portfolio
regains, you can integrate the term policy in to their legacy plan…or just walk away from it after it has served the purpose. A whole life policy can also serve as a cash supplement during retirement years or emergencies. Through loans, a non-taxable event that are not necessary to repay, the client can use it to supplement their cash “bucket” in their later years. Keep in mind that any outstanding loans would be subtracted from the policy benefits when the insurance policy “matures”. Also for HENRYs (High Earning Not Rich Yet), how Wall Street loves their acronyms, a solution such as a Fixed Index Universal Life policy can meet their immediate insurance needs while also serving as a future cash supplement to their retirement. Under current tax treatment these high earners fail to qualify for ROTH, and quickly find themselves maxing their 401(k) and Traditional IRA contributions. The underwriting for Life Insurance and Disability/LTC are yin/yang from one another. One of the hurdles for many planners in properly addressing risks to a client’s financial goals is the task involved in The Register | September-October 2017
Published on Aug 25, 2017
It is hard to believe there are only four months left in this year. Already we are well underway with the collegiate 2018 National Financial...