Risk is an inherent aspect of finances; without taking some risks, you’ll probably miss out on some things. In your finances, this might look like a lack of growth in your portfolio. We call that type of risk market risk, and it’s the one that most people are familiar with. There are many other types of risks in finances and, to a certain degree, it is impossible to avoid all risks. Just like when you wake up in the morning, you may have a regular day planned, but the truth is, even with the most mundane tasks, there is always a chance of things going seriously wrong.
A good financial planner not only helps their clients develop a strong plan based on their clients’ goals, hopes, and dreams - everything we want to have happen in our life - but also, considers those unexpected things we would rather not happen. How do we build protection into a financial strategy against the risk of unplanned change?
You already know the answer: how do you protect your home from unexpected calamity - a hailstorm, a wildfire, a tornado? You purchase homeowners insurance. How do you protect your car from a distracted driver and potential accident? Auto insurance. How do you protect your life, your family, your assets from unexpected changes - disease, disability, medical costs? The best, most effective and efficient way to do so is life Insurance.
No one likes to talk about becoming so sick or incapacitated that they can no longer work, provide for their family, or take care of themselves. Our desire to avoid this is evident by the fact that many Americans are unprepared for retirement, let alone any kind of advanced medical costs
. It seems, rather than addressing the austerity of the issue, most Americans would prefer to bury their head in the sand. As a financial advisor in a fiduciary environment, we absolutely cannot do this any longer. We must manage the risk of unexpected changes with consideration for how it will impact ourselves, our families, and our dignity.
This is where a well-constructed insurance strategy could become the greatest risk mitigation tool that we have. Why?
- The protection benefit of insurance is effective immediately once the policy has issued.
- Accelerated benefit riders or "living benefit" riders can protect you and your family from the financial challenges that could come from unplanned medical event and costs.
- In certain types of life insurance, you could potentially reap some of the gains in the market, while not being exposed to down-side risk.
Remember – the primary purpose of life insurance
is protection against unplanned, life altering events and should be designed to be an powerful resource to cover unexpected costs
. But, if you live a good long life, healthy all the way through, you may still have the option to access the cash growth in the policy and use that to supplement your retirement income, take a big grand trip around the world, do all those renovations on the house you always wanted to, whatever. No questions asked. Again, work with your advisor to determine the best strategy for utilizing cash growth for both the planned and unplanned changes.
Life insurance is one of the most powerful financial planning tools we have. It diversifies a plan, provides a non-correlated and valuable asset, and most importantly, it is the most cost-effective way to provide risk mitigation. We purchase thousands of dollars in insurance to protect our tangible assets. Doesn’t it make sense to protect your life as well?
Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing.