Risk Management Demystified

Find the right mix of insurance coverage to live with confidence.


20-year-olds have a 30% chance of becoming disabled for at least six months before age 67.

Source: Social Security Administration, 2011

Let’s face it: Life is a risk. That’s why risk management is a crucial part of a long-term financial plan. When it comes to investments, we’re talking diversification and asset allocation. When it comes to your family, health, property and income, we’re talking insurance.

But what kind of coverage do you really need? Take a deeper look at four useful types of policies. 

Life Insurance

Perception: It’s just for people with dependents.

Reality: It can be used as a flexible planning tool that provides liquidity, and the survivor benefit is generally not considered taxable income.

Though term life insurance is designed to replace the income of a breadwinner if the unthinkable happens, what’s called a “permanent” policy has an investment component that can be helpful for things such as keeping the family business functioning or paying estate taxes after death.

Disability Insurance

Perception: The risk of long-term disability is too minimal to worry about.

Reality: Sadly, today’s 20-year-olds have a 30% chance of becoming disabled for at least six months before age 67, the Social Security Administration estimated in 2011. 

If you’re out of work for an extended period, the lost income can easily reach six figures or more. Even if your profession isn’t strenuous, you may not be in the clear – cancer is the second-leading cause of claims, according to insurer Sun Life Financial.

What about that government safety net, you say? Workers who pay into the system are eligible to apply for Social Security disability insurance, but the average benefit in 2016 was just $1,167 a month.

Considering all of this, it’s best to get a professional opinion about whether you can afford the consequences of going without this type of coverage.

Long-term Care Insurance

Perception: Coverage isn’t needed – doesn’t Medicare pay for that?

Reality: Help with the tasks of daily living, similar to care provided in a nursing home, isn’t covered by Medicare.

Such aid is a common necessity. Seven out of 10 people turning 65 in this day and age can expect to use some form of long-term care, according to the U.S. Department of Health and Human Services, though only one out of 10 has planned ahead to pay for it.

Securing this type of policy allows you control over the situation, making sure your future needs will be met without creating an undue burden for your loved ones. Though coverage can be expensive, there are federal and state tax breaks available for qualified plans.

Seven out of 10 people turning 65 can expect to use some form of long-term care.

Umbrella Insurance

Perception: People who are very wealthy need it.

Reality: If you often entertain at your home, own a dog, have a teenage driver in your household or ride jet skis in your spare time, you might want to prepare for a rainy day.

This basically is an extra layer of liability coverage above the limits on your home, auto and other policies – protection just in case you or a family member cause harm to someone else. For example, if your dog attacks a visitor and your home insurance covers up to $300,000 of liability, then you’re on the hook for anything above that amount if the injured party sues. If you don’t have the money, your wages could be garnished.

Time for a Fresh Perspective

Facing risk isn’t easy, but the protection you can gain for yourself and your loved ones makes it all worth it. That’s why you should review your insurance needs once a year and after each big milestone in life. You can always call on your advisor to coordinate with other professionals in determining the proper policies and coverage for you.

Asset allocation and diversification do not guarantee a profit nor protect against a loss.


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