For many producers, accessing and opening a life insurance discussion with affluent prospects is difficult at best.

Most responsible persons would agree that life insurance is very important. But they still do not wish to discuss it in depth.

Would a producer get a different reaction to, “What percent of your major assets are vulnerable to involuntary redistribution by a court?”

Many persons do not realize that they may be held legally responsible for damages sought by a claimant they never met or had any direct involvement with. When a producer is able to garner the prospect’s asset insulation, related subject areas such as estate planning, business succession, life insurance funding and other vital planning areas are more easily explored on an advisory rather than vendor basis.

Related: 3 places clients can find money for life insurance

Who tends to get sued?

Closely held businesses are especially vulnerable to litigation risk since most do not have internal human resource, legal or risk management departments. The owner and managers generally wear many hats and tend to react to issues as they occur rather than plan proactive prevention.

Perhaps the most insidious risks are from employment practices brought by one’s own employees. The cost of defense against harassment, wrongful discharge or discrimination can exceed $100,000 — even if you win. Many other serious risks are not insurable at all including divorce, disputes, wage related employment practices, environmental issues and punitive damages.

Risks that are insurable have policy internal limits and exclusions.

The use of strategic planning incorporates legal entities used to segregate major assets and keep litigants and creditors at bay by removing the financial gain incentive that drives most litigation.

When you consider how often we buy, sell, rent, employ, borrow and disagree with others, it is difficult to imagine not ever being named in a significant litigation claim. (Photo: iStock)When you consider how often we buy, sell, rent, employ, borrow and disagree with others, it is difficult to imagine not ever being named in a significant litigation claim. (Photo: iStock)

Litigation lottery

Common sense dictates that a society’s legal system should discourage wrongdoing by imposing punishment and reparations on those so deserving. Our legal system has been manipulated and reconfigured to the point that only those that can pay are sued so as to produce financial rewards for claimants and their lawyers.

Affluent people are more likely to be linked by creative lawyers to being legally responsible for damages even if the correlation is quite indirect. If you sue enough affluent defendants, you will likely get a settlement or judgment in your favor eventually.

Litigators scrutinize the respondent’s ability to pay even before the merits of the plaintiff’s complaint, lest they risk being uncompensated. The legal system to which we all are subject is not intuitive, and results in often unpredictable having serious impact on affluent families under the noble mission of “righting a wrong.”

What’s more, divorce is an unfortunate eventuality of nearly half of American marriages. Rarely is such an event smooth, and divorces ultimately result in settlements perceived to be fair by both parties. Business and professional relationship disputes have a similar perilous potential with each party positioning for advantage in the reconstituted remaining business. Civil tort litigation has facilitated involuntary transfers of over 235 billion US dollars of wealth in 2015 alone.

See also: In wake of lawsuits, storm clouds over structured settlements

Sue over what?

When you consider how often we buy, sell, rent, employ, borrow and disagree with others, it is difficult to imagine not ever being named in a significant litigation claim. Many serious risks like divorce, business co-owner disputes, and employment wages are not insurable. For the events that are insurable, there are exclusions, exceptions, and limitations on all policies.

What is discrimination, exactly? How about harassment? When is it wrong to discharge an employee and how should it be done? If you are a professional, your malpractice or errors and omission coverages are limited. As an executive in a larger company, you can be personally responsible for the accuracy of corporate financial reporting.

In the final analysis, any unsatisfied claimant can theoretically engage the best lawyer on a fee contingency basis (no cost to plaintiff) to intimidate and litigate anyone with the means to pay by linking that party somehow to the damage causation. Many claims are settled without trial to avoid embarrassment, discomfort, and risk of verdict. Naturally, this practice encourages more litigation.

How can a producer help raise awareness and thereby become valuable to an affluent prospect?

As producers, we often identify ourselves as being related to the products and services that we render. Affluent prospects tend to have been offered most if not all the services we offer by others and are not motivated to review the efficacy of their planning with a new “specialist.” So it is vital to get the attention and earn the respect of the listener in the first few minutes of conversation or risk being shelved for a future time. Asset insulation for the major wealth one holds gets their attention as it is relatively unknown, self-serving and timely in any economy. If the producer can become conversant with asset insulation sufficient to raise prospect interest, it is not necessary that he/ she directly deliver the services. As with estate planning, it is not necessary for the producer to draft wills to utilize the importance of disposition documents to engage in meaningful advisory conversation with a prospect. There are specialists that can effectuate asset insulation planning and the requisite documentation as there are trust and estate attorneys used in estate planning.

Asset protection has become as common as estate planning for affluent clients aware of the perils. Wealth preservation planning can and should be incorporated into estate planning, business ownership succession, and financial planning efforts. The cost is modest in relation to the legal and time cost of defense of even one event. Aside from health, what is more important than protecting all we own?

Ray Chodos and Adam Chodos are members of the Wealth Preservation Group, LLC, (WPG) of Greenwich, Conn., a firm that specializes in serving the asset-protection concerns of business owners and their advisors.

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