Solid risk management system should include insurance planning to protect assets

As a financial service professional, you take upon yourself the role of helping your clients build their financial futures. Undoubtedly, during your years of training for this demanding profession, you have come across one of the many versions of the financial planning pyramid, used by financial advisers and consultants to explain the concept of financial priorities. As you will recall, the foundation of the financial planning pyramid is protection. Unfortunately, far too many financial advisers are not well-grounded educationally and/or experientially, in the tools and techniques for establishing a solid risk management system, which is how you provide protection to clients and their families. Without knowledge of how to construct a risk management system, a gap exists. What is the result of this gap in knowledge? While advisers are well-suited to advise clients and prospects on investments and investment planning, they have limited knowledge and experience with insurance and insurance planning. And why does this matter so much? Many of the products used in successful risk management include insurance planning. As one of those who help clients build their personal financial pyramid, you must start with the foundation, and you must make it as strong as you can. You do that by making sure that the most fundamental protections your clients require are in place. Consider a client with whom you've been working for two decades. By assisting your client with saving and investing over 20 years, you have been instrumental in helping them amass hundreds of thousands of dollars in investment accounts. Over this same 20 years, your client has had children and those children have become teen-age drivers. One evening, one of those teen-age drivers goes out with friends and—against all previous training and the teachings of his parents—drives drunk, gets into an accident and kills another driver. In one night, the hundreds of thousands of dollars you've helped them amass is gone, as the result of a liability lawsuit.

WORTH CONSIDERING

Too far fetched? All of your clients live in the big city and don't own cars? OK, consider this … You help your client begin saving so she can eventually grow into investing. As her career blossoms and her savings and investments grow, she is becoming more and more confident about her financial future. As she reaches her mid-40s, she becomes ill and disabled. Because she is employed by a small business, she does not have group disability income insurance and burns through her savings. In her 50s, she is living on Social Security disability insurance. Too negative for you? OK, consider this … Your clients successfully reach retirement after your advice and hand-holding over the past four decades. So there is nothing left to worry about, right? What about the likelihood that 70% of those reaching age 65 will experience a long-term-care event by age 85, and the likelihood that family members will make up as much as 70% of those serving as a caregivers?

NO EXCUSE

The point of protection planning includes protecting your clients from property damage; liability damage; the loss of income through disability and the loss of assets in retirement, due to experiencing a long-term-care event. Now, those of you who are reading this and saying, “But we don't offer property and casualty or health insurance in our practice,” have no excuse. While you may not sell such products, it remains your responsibility to make sure your clients have these valuable protection tools in place. The essence of risk management is to determine what risks your clients face, how you can address them and what tools are appropriate to overcome the risks, as well as risk management system administration. How do you do this? By providing your clients with knowledge of what gaps exist in their protection coverage, and by helping them find the appropriate financial service professionals to meet their needs. Why do you do this? Because to do less would make you unworthy of the title of financial planning professional. Kevin Lynch holds the Charles J. Zimmerman Chair in Life Insurance Education, at the American College for Financial Services, in Bryn Mawr, Pa. He spent over four decades in financial services, including lending, property and casualty insurance, and life and health insurance.