Let’s Talk Insurance. . . “If I talk about insurance planning, will I die immediately?”
Erik Mizell, CLU®, CFP®
Wait, before you close this message, let’s have a candid conversation about the most misunderstood area of planning. Yep, you guessed it, this is the dreaded insurance planning talk. The adage goes “insurance is sold, not bought.” For this reason, along with the sheer magnitude of the topic, most people will choose to avoid the conversation all together. This is an enormous mistake because the success of a financial plan hinges on the ability to protect clients from losses they can least afford to happen.
Insurance planning can accomplish many different things but it can be overwhelming to sift through the options and make a good decision. Types of insurance products in the marketplace span a wide range including policies that protect your valuables (car, house, jewelry…), the inability to work (disability), the unfortunate event of death (life), and even policies that will help pay for a sudden trip to the ER vet with Fido (pet). There is a fine line between providing sufficient coverage for potential risks that may be encountered and balancing being “insurance poor”. Certain types of coverage are mandated (car, home, health) by banks and governments. While other types are typically viewed as voluntary (life, disability, long term care). Unfortunately, the voluntary policies can be very difficult to understand because the insurance industry has historically been very “sales driven”.
The importance of addressing your level of insurance planning is often understated in the financial industry. This is generally due to an advisor not wanting to be painted as an “insurance salesman”. While stereotypes like this are sometimes warranted, I believe that financial advisors have a duty to explain the importance of how certain risk exposures will affect a client’s overall financial plan.
Insurance planning is the one area of a plan that a client will be required to qualify for to obtain the appropriate level of coverage. Once a person’s health begins to deteriorate, the likelihood of qualifying for life/disability/long term care insurance becomes less likely. I believe that insurance and risk mitigation planning should be addressed as early in a client’s career as they can financially afford.
The overall health of a client’s financial plan is not exclusively driven by achieving satisfactory investment return rates on a portfolio. This could entail making sure that they have an appropriate level of liability, automotive, and home replacement coverage. It may be the reassurance of a guaranteed income stream if something happens that eliminates the ability to work due to a disability. As confusing of a topic as insurance planning can be, one thing is a certain – if you choose to avoid the conversation about risk, “may the odds be forever in your favor”.