By WES BOYCE
Nachman, Norwood & Parrott
Insurance, by definition, is all about managing and protecting against risk. Successful people are usually vigilant in making certain their businesses are adequately insured against risk. These same people, who are typically very busy and leading full lives, often put off addressing their personal insurance needs by saying, “I’ll get to that another day.” In addition to this unintentional procrastination, our team has also found that high-net-worth individuals have a tendency to underestimate their need for insurance.
In this, our third and final installment of a series of columns on the importance of a wider perspective when investment planning, we wanted to share some insights on how insurance plays a key role in wealth management. Recent years have revealed a curious trend of high-net-worth individuals who neglect to revise or adjust their insurance as their wealth grows, according to local insurance broker Howard Einstein. A lack of planning in this area, while typically not an issue in the present, can create significantly more headaches, and potential financial loss, later in life.
We view insurance as a vital tool in the management and preservation of wealth. Insurance not only protects you while you are alive, but it protects your assets for your family and their future. Risks like loss of income, longevity, disability and death can all be better planned for with the use of insurance as an integrated, not separate, part of your investment plan.
We work with professionals to help our clients regularly evaluate whether their insurance coverage aligns with their wealth. But there are two types of insurance in particular, life insurance and long-term care insurance, that people must consider specifically to protect their own personal wealth and to make sure they and their loved ones will have sufficient care.
Life insurance is the first priority. “People often regret not having life insurance, especially as their health changes or their spouse passes away,” says Einstein, principal at Rosenfeld Einstein and veteran of the insurance industry. “People find they are not able to maintain their income following the death of a spouse and often fall into debt.”
Einstein advises people to consider how much insurance they think they might need, at least partially based on how much their net worth has increased over the years. It is also important to consider any changes in their health and how their ability to generate income would change due to the death of a spouse.
Long-term care insurance is also an important consideration when making long-term investment plans. High-net-worth individuals sometimes underestimate the impact of longevity risk to their assets and estate. Einstein recommends that everyone have long-term care insurance. Long-term care insurance, purchased at the same rate as life insurance, can protect your income when you’re not working and can help protect your estate.
It is also important to know that in the near future, long-term care insurance may be impossible to purchase. People are living longer and many insurance companies are losing money on the coverage. Today, only a few companies sell it, and that number could further decrease. If you are concerned about protecting yourself against longevity risk, consider purchasing long-term care insurance sooner than later.
At NNP, we believe a well-rounded financial planning strategy benefits from the perspectives of professionals in their respective fields. We know that people are balancing life and work every day, and planning for the financial impact of future life events can take a back seat. We hope the perspectives shared in this series of columns has helped you clarify your plans so that you can enjoy life to its fullest.
For more on “Perspectives” visit nnpwealth.com.
Wes Boyce is vice president for Nachman Norwood & Parrott and has more than 18 years of financial industry experience. Wes is a Certified Financial Planner professional and a member of the Greenville Estate Planning Council.
- Part 1: Managing wealth takes more than just a financial advisor
- Part 2: Important life decision on the horizon? Call your tax advisor
- Part 3: Cover your assets by adjusting personal insurance based on wealth needs
For more on “Perspectives,” visit nnpwealth.com.