Financial Figures

Risk mitigation is an important part of wealth building strategies

Typically, when you get together with a financial planner or fiduciary, the conversation focus is on investing, budgeting, or smart money moves. What rarely gets considered is how to best hedge your bets against risk of the unknown.

While some still cringe when they hear the term insurance salesman, risk mitigation has come a long way from the days when it meant someone was likely to corner you at a networking event with an aggressive sales pitch. Today, there are lots of options that make sense for your exposure concerns.

Homeowners’ and collision insurance are non-negotiable when banks still hold the note. Health insurance is critical if you can afford it. But what about the other stuff? The answer to this one is, “It depends.” Life, disability, dental, umbrella policies, etc. can be a necessary evil. Or, they can be completely unnecessary. Your personal circumstances will dictate what makes sense.

Insurance is changing

You want to make sure you’re not over-insured. Still, it’s important to be covered so you’re not financially crippled when surprises happen. Most don’t understand contractual language. It’s important to know what you’re buying. Price shopping makes little sense when cheaper means your claim is denied when crisis hits.

For example, disability insurance has two ways of offering contracts. The ideal is own-occupation coverage. This means you’ll get paid if you can’t do your existing job. It costs more than any-occupation coverage. The latter means if you’re a doctor who can still bag groceries, you’ll get nothing from the policy that you’ve paid on for years.

FINANCIAL FIGURES

By Michael Shelton

Executive Summary:

It’s not the policy that’s important, it’s the contract.

Life insurance is another great example. You can now get coverage that includes disability, life, and long-term care. This kind of contract kills three birds with one stone. Accelerated benefit riders let you use the death benefit to handle health needs you have while you’re alive. Paying out when you die is a secondary benefit if you don’t use money for chronic, critical, or long-term care needs. That makes even single people with no children good life insurance candidates.

Accumulating wealth can be as much about ensuring (or insuring) you’re not over-exposed when crisis occurs as it is about smart investing. Knowing where you’re vulnerable and what you need to do to reduce risk can make a big difference for your financial security. It’s not the policy that’s important, it’s the contract. Make sure it’s written to your needs. If you don’t know what that should say, it makes good financial sense to find someone who does to act as your advocate.

Michael Shelton is a financial retirement counselor. Reach him at michael@discover360 Financial.com