Is your wealth protected from unexpected risks?
By When you think of wealth management, your mind may go straight to investments — things like stock market growth, real estate returns, and retirement contributions. All those are important, and anyone who has built wealth knows that time and discipline are your friends.
But protecting that wealth also requires you to look at blind spots that many people often ignore until it is too late. Perhaps your attention is focused on day-to-day financial news in the media, which can be entertaining and leave you less focused on the real, everyday risks that can affect your financial plans.
Here are four hidden liability risks to evaluate before life throws you a curveball.
Caught without an umbrella
When we review clients’ property and casualty coverage, including home and auto insurance, we often find that they’ve never considered an umbrella policy. You may not realize that many home and auto policies cap personal liability coverage somewhere between $300,000 and $500,000. In the litigious world we live in, we may only be a single car accident or a slip-and-fall on our property away from a significant judgment that exceeds our existing coverage. In such situations, initial coverage may be exceeded as personal liability limits are met, leaving personal assets exposed.
Enter an umbrella insurance policy, which allows you to offset your potential liability with additional coverage that may help protect your family’s assets. Limiting your exposure can be an easy way to help you sleep better at night.
Digital security against ever-changing tech
It’s not a surprise that high-net-worth families may be targets for ransomware, wire fraud, identity theft, and online extortion. I see more elderly clients coming into the office and asking us to review their email to confirm that the PDF bill they received from their credit card company is legitimate. (It often isn’t)
But in fairness, our seniors first lived in a world without personal computers or email. They’ve had to learn these things as part of the evolution of technology within our society. They didn’t get PDFs through email. That’s why this stuff works. It often looks legit. Toss in artificial intelligence, and all of this becomes very troublesome. These AI threats are adapting quickly to our weaknesses.
Just like you insure your home, health, and assets, you can consider insurance that may provide coverage for certain cyber-related risks. We’re not just talking about coverage for losses. If you become a victim of identity theft, some services may help contact credit agencies and restore your credit profile. I’ve known folks who say it was worth every penny not to have to sit on hold for hours trying to clean it up themselves.
Financial burden of long-term care
We talk about this a lot, but there’s a reason. One of the scariest things for clients is experiencing a major health event or needing extended care that can have a negative effect on their hard-earned assets.
When I talk about that fear with clients, I often hear they’ve waited too long to evaluate their options, and now they can’t fit the cost of coverage into their budget.
When you’re young, you don’t consider what it’s really like to experience the effects of aging over time. Long-term care may cost $80,000-$120,000 a year, depending on where you live. When you start thinking about that cost being added to your family budget, you can see how that could rapidly erode the estate you built, with the intention of it going to future generations. Suddenly, all that frugality and deferred gratification may be for naught. That’s the risk of not evaluating a long-term care solution as part of your overall plan.
Even if you don’t think long-term care insurance is right for you, or you don’t qualify for coverage, you certainly don’t have to rely solely on self-funding. Consider a hybrid solution, such as a home care plan or an asset-based plan, that may help reduce unnecessary risk to your retirement plan.
Misaligned life insurance
I can’t tell you how many people we work with who bought a whole life insurance policy way back when from a college friend who had just joined a life insurance company training program. Some clients were even led to believe that whole-life insurance should be their primary savings vehicle. I wholeheartedly disagree.
There are also the many pre-retirees and retirees who, in the height of their earnings years in the ’80s and ’90s, were sold universal life policies that may not be performing as originally anticipated due to unexpected changes in interest rates over the last few decades.
Those decisions they made in their 30s and 40s may continue to affect them in their 60s and 70s. They may be life-insurance-rich but liquid-asset-poor.
Life insurance is rarely a set-it-and-forget-it asset. We often find that clients let term policies lapse or cash in their universal life or whole life policies without considering the tax liabilities involved. Don’t make this mistake and consider the potential consequences before making changes to an existing policy.
Before a decision, we always recommend reviewing your past choices with us. During that time together, we will take a complete inventory of your current life insurance portfolio, allowing us to evaluate whether it remains aligned with your family goals. We often find that things have changed. Debts, including the mortgage, have been paid off. Maybe your income replacement needs have changed. You may also have a larger family and new estate-planning goals that life insurance can help you fulfill. Let’s review what you have and figure out what you’d like your current insurance coverage to help accomplish.
Growing your wealth is only half the battle. Defending your wealth and having a plan in place for uncertainties is what may help keep a legacy intact across generations. When we review these potential risk areas, we’re not going to dwell on and worry about worst-case scenarios. Instead, we will acknowledge where you’ve been, dig into where you are, and discuss with you what your future may look like.
If you’re thinking, “I’m exposed to one of these liability risks,” go ahead and schedule an asset protection review with us. Our goal is to put a clear plan in place so that your family and future generations can focus on what matters most with greater confidence.
This material is for informational purposes only and is not intended as individualized investment, insurance, legal, or tax advice. Insurance products, coverage, costs, features, exclusions, limitations, and availability vary by product, insurer, and state. An insurance policy may not cover all potential losses or risks. Individuals should consult with their own qualified professionals before making any financial decisions. Guarantees are based on the claims-paying ability of the issuing insurance company.
Article by David Smyth, Senior Partner and Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.