At Your Own Risk: Ignoring the Risk Conversation
The raison d’etre of financial advisors is helping individuals build wealth and reach important financial goals while ensuring risk management. Perhaps the greatest risk to an individual’s wealth accumulation plan is the risk of financial loss due to lost income, property damage or personal liability. When large financial losses are incurred, they can undermine years of saving and investing, and derail the best-laid plans.
Addressing risk management with your clients not only improves their chances of achieving their financial goals, but it also protects your business against the depletion of assets that can occur when clients seek to cover these financial losses.
A Risk Assessment List
Financial advisors may want to consider conducting an annual risk assessment with clients as part of one of their quarterly client reviews to evaluate how well they are protected from the major risks they face, including:
- Loss of Income—Whether a client’s financial life and dreams are based on the incomes of two working spouses or a single income, the loss of that income due to disability or death can have a profound impact on meeting current living expenses, funding a child’s college education or building a financially secure retirement.
As an advisor, you have unique insight into the cost of future goals and determining if they have the appropriate levels of disability and life insurance to fill the gap that may arise from a loss of income.
- Liability—Personal liability can result from any number of unforeseen events, (e.g., a child holds a party in the absence of parents and someone is injured; intoxicated guests leave a client’s party and causes property damage or hurts someone; a domestic worker is injured in a client’s home; a tree falls on a neighbor’s car or roof).
Asking clients about the amount of personal liability coverage they may have under their homeowner’s policy can help clients protect themselves from the most expensive sources of personal liability.
- Business Liability—Without the proper business insurance coverage and legal structure, business liabilities can destroy a business and become personal financial obligations.
- Health care Risk—Medical insurance is expensive. Reducing that cost often requires taking on a greater financial burden, typically through higher deductibles, larger co-payments and reduced coverage. Each can cause a financial burden when a health issue emerges.
- Long-Term Care Risk—Care at home or in a nursing home facility can be expensive. Carrying LTC insurance can mitigate the risk of asset depletion that may affect a spouse’s future financial security.
No advisor can be expected to have a comprehensive understanding of all the risks clients face or a deep grounding in the insurance solutions that may protect against those risks. However, every advisor can start the conversation and work with a trusted insurance professional to help guide clients to a more secure future.
Please reference disclosures: http://blog.americanportfolios.com/disclosures/