As a financial advisor, you have worked diligently with your clients establishing a financial plan, most of which is focused on the development of savings objectives for accumulation and distribution needs during retirement. These goals, in turn, require proper periodic contributions and asset allocation for modeling. Most of the financial planning software uses Monte Carlo simulation to test varying asset allocation strategies, funding and spending patterns, and historical returns resulting in a “confidence level” for the client in reaching their retirement goals.
The best laid financial and retirement plans, however, can be derailed by one of four risks, which are often not accounted for or ignored altogether.
This is the risk that a client gets sick or temporarily or permanently disabled which prevents them from generating necessary income to meet their living expenses, never mind saving for retirement. The other meaningful risk related to morbidity is that the client may require care for an extended period of time, either before or during retirement, and need long term care services at home or in a facility. A loss of income for an extended period or a depletion of retirement assets spent on assisted living can cause a major disruption in any financial plan.
Solutions for these risks include:
1. Disability Income Insurance
2. Chronic Illness Insurance
3. Accident and Sickness Insurance
4. Terminal Illness Insurance
5. Long Term Care Insurance
This is the risk of premature death and the resulting lost income necessary to support family goals such as living expenses, childcare, mortgage payments, educational needs, or other liquidity objectives. Life insurance is commonly purchased to cover this risk and the need may become smaller as more wealth is accumulated. Over time, permanent insurance may be required for other older age objectives such as estate liquidity, planned gifts to children or charities, or in some circumstances, estate taxes.
Common life insurance solutions include:
1. Term Insurance
2. Whole Life Insurance
3. Fixed Account Universal Life Insurance
4. Index Universal Life Insurance
5. Variable Life Insurance
This is the risk of living too long and outliving one’s earmarked retirement assets. Study after study has shown that this risk ranks among the highest in terms of what keeps people awake at night. Annuities and some forms of life insurance can act as a longevity hedge for many clients, providing guaranteed income for life or for a predetermined number of years.
Annuity solutions are many but in simple terms, they include
1. Tax Deferred Accumulation Annuities
2. Immediate Payout Annuities
3. Deferred Payout Annuities
This is the risk of unexpected loss or confiscation of certain assets during life or at death to income, capital gains, gift, or estate taxes. Many financial advisors are not aware of the tax traps of certain financial assets, especially upon transfer at death.
We view the world in three buckets during the accumulation, distribution, and transfer phases of a client’s lifetime:
1. Taxable Assets
2. Tax Deferred Assets
3. Tax Free Assets
OUR INSURANCE NETWORK MEMBERS bring years of experience and risk management knowledge to collaborate with you to serve the best interests of your clients and their families. The network will also provide a more holistic view of the financial planning risks that exist in order to help you and your business retain clients generationally.