Broker Check
Risk Management

Risk Management

| May 29, 2018

In my blog post dated April 24, 2018, we addressed the sixth and last roadblock to creating a financial plan: Procrastination.  I wrote about how starting a plan today is always better than starting tomorrow.  Here is a link to that post - Roadblock Procrastination.

In my ensuing blog posts concerning financial planning I will address six key areas to consider when creating a financial plan:

  1. Risk Management
  2. Cash Management
  3. Investment Concepts
  4. Tax Management
  5. Retirement Planning
  6. Estate Conservation

The first key area in any sound financial plan should be to reduce your exposure to financial risk, even before you implement an investment strategy.  Risk management should form the foundation of your plan. A well designed risk management plan may help protect loved ones from unnecessary hardship in the event of a tragedy.  Risk management is often the most overlooked part of the planning process.

Insurance can be a key factor for eliminating financial risk. Insurance can benefit just about everyone, with different needs at different times of life, and you should definitely reconsider your insurance strategy every time you review your financial plan. Insurance in various forms has been with us for a long time. The earliest known type of life insurance was for the cost of burial that Greek and Roman religious societies provided for their members, although no actuarial calculations were used. The Tontine Annuity System, founded in Paris by the 17th century Italian born banker Lorenzo Tonti, has been regarded as an early attempt to use the law of averages and the principle of life expectancies as the basis for payment of annuities. In the 18th Century, Lloyd’s of London evolved out of humble beginnings in a London coffee house of the same name to eventually become the world’s most famous insurance company. It was there that the term underwriter evolved, to describe those who signed their names beneath each other on a policy, with the amount of the risk they were prepared to cover.

Today, insurance has evolved to meet a broad spectrum of needs. Different types of insurance help protect you and your loved ones in different ways against the cost of accidents, illness, disability and death. The easiest and most cost-effective way for most people to mitigate risk is through insurance products, such as, life, disability and long-term-care. 

Life insurance is probably the most familiar form of insurance and plays an important role in protecting family dependents from possible financial hardship. One advantage of permanent life insurance is that the cash value grows tax deferred as long as the policy is in force. Whole Life, Universal Life and Variable Universal Life are different forms of permanent life insurance with different types of cash value options. 

Term Life Insurance policies provide for a specific period of time.  Term policies are generally available with level premiums for periods of 10 to 30 years.  Generally, term life insurance is less expensive than permanent life insurance.

Disability Insurance could help you maintain your financial stability during a challenging period when you are unable to earn an income. 

Long-Term-Care Insurance is an insurance product that helps pay for the costs associated with a chronic illness or disability for long periods of time. LTC insurance covers care generally not covered by health insurance, Medicare, or Medicaid. Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform two of the six activities of daily living such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.

One of the most important elements of a financial plan is risk management using insurance.  Recognizing the role insurance can play in your family finances is an important first step. A critical second step is determining what kind of insurance and how much insurance you may need. This is the first phase to a well-constructed financial plan.

Until next time, cheers!