When people think about financial planning, investments, retirement accounts, real estate and building wealth often come to mind first. But accumulating wealth is only part of a successful financial strategy. Protecting what you have worked so hard to build is equally important.
As an independent insurance agent, I often work alongside financial planners, attorneys, CPAs and other professional advisors to help clients look at their financial lives more comprehensively. A strong financial plan should address investments and long-term goals, but it should also consider the risks that could significantly disrupt those plans.
For business owners, life insurance can play an especially important role.
Many successful companies depend heavily on one or two owners, partners or key employees. What happens if one of those individuals unexpectedly passes away? Would the company have enough liquidity to continue operating? Could it afford to recruit and replace a key employee? And what happens to an owner’s share of the business?
Key person life insurance can provide financial resources following the death of someone who is critical to a company’s success. Life insurance can also be an important funding mechanism for a properly structured buy-sell agreement.
Consider two partners who have spent 20 years building a successful company together. If one partner dies unexpectedly, that person’s spouse or family may inherit the ownership interest. The surviving partner may want to purchase those shares, while the family may prefer to receive the financial value of the ownership rather than become involved in operating the business.
Without advance planning, that situation can become financially and emotionally difficult for everyone involved. With the right planning in place, the family can receive financial security while the surviving owner has a better opportunity to continue the business they worked so hard to build.
Life insurance, however, is only one piece of protecting a financial future.
Business owners also need to make sure the company itself is adequately insured. Buildings, equipment, vehicles, inventory, employees, liability exposures, cyber risks and business income can all represent significant financial exposure. A major loss that is uninsured or underinsured can quickly affect not only the company, but also the owner’s personal finances and long-term financial plan.
The same principle applies to personal insurance.
As individuals and families accumulate homes, vehicles, investment properties, recreational assets and other property, their insurance programs should evolve with them. Liability limits and umbrella coverage should also be reviewed as assets, income and overall financial exposure increase.
One of the most common mistakes is assuming that an insurance program established five or ten years ago still reflects today’s circumstances.
A lot can change in that amount of time.
Businesses grow. Revenue and payroll increase. Buildings are remodeled. Equipment is purchased. New locations open. Property values rise. Families buy additional assets. Children grow older. Retirement plans change. Personal net worth increases.
Yet insurance policies are sometimes left unchanged for years.
Insurance should not be something you purchase once and then put in a drawer.
Regular reviews with your insurance professional can help identify changes in exposure and determine whether your policies, coverage limits and overall insurance strategy still align with the assets and financial future you are trying to protect.
The strongest financial planning often happens when a client’s professional advisors communicate with one another. Financial planners, insurance professionals, attorneys and CPAs each bring a different perspective to the table. Working together can help clients not only build wealth but protect it and prepare for circumstances they hope will never occur.
A good financial plan helps you build your future. A good protection plan helps make sure one unexpected event doesn’t undo it.
