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“Holistic planning” is hot, and it’s important.

Helping clients take a broad view of the risks they face is a great way to deepen your relationship with them, and to protect their ability to participate in all kinds of financial services activities.

If you focus on working with life insurance, health insurance, or annuities, you may think that some of these risks fall outside your area of expertise, but it doesn’t hurt to remind clients about the big picture.

Based on thousands of conversations with my own clients, here are the top five threats to the typical client’s financial life. (Other than weak retirement planning, which, obviously, is such a big, complicated topic that it needs to be discussed in a separate article.)

1. Illnesses or Injuries

While disability “will never happen to me,” it will happen to someone. Over 25% of today’s 20-year-olds will become disabled before they retire, according to the Social Security Administration. Despite common belief, injuries account for a small fraction of disabilities, whereas musculoskeletal disorders are the most common type of claim (i.e. back pain, arthritis, etc.) followed by cancer.

(Related: 3 Lessons About Paycheck Protection Awareness)

The average disability then lasts for over three years, according to the Council for Disability Awareness.

Combine these stats with the fact that (according to the Federal Reserve Board) fewer than half of Americans have enough liquidity to cover three months expenses and you have a real threat. The most efficient solution is a combination of group and individual disability insurance, ideally with a true-own occupation definition and portability.

2. Lawsuits

With over 80% of the world’s attorneys residing in the United States (according to data from eLocal Lawyers), we live in a sue happy society. Most Americans would have trouble affording the legal fees on either side of a case, but without proper protection, the losing party will certainly realize financial despair.

Liability protection on auto and homeowner’s insurance are a critical line of defense. An umbrella policy can go above and beyond these lines of coverage to add more security. Qualified retirement accounts, assets held in certain trusts, and real estate titled by “tenancy by the entirety” are a few other ways to further shield assets.

Small business owners must pay special attention to how their business is structured to limit liability. Lastly, remind clients that they should always document disputes and complaints and rely on written contracts, not handshakes.

3. Taxes

Uncle Sam will always be there to collect his share… federal income taxes, state income taxes, city taxes, property taxes, capital gains taxes, payroll taxes, sales taxes, gas taxes, etc. Working with qualified advisors and CPAs can help your clients limit this burden.

A commonly overlooked issue is the funding of pre-tax retirement accounts to chase current year tax deductions. This is not a tax-savings, but rather a compounding tax-postponement. Retirees often forget or downplay the effect income taxes will have on their retirement distributions. Roth options, post-tax investment accounts, and cash-value life insurance all provide a future tax hedge.

(Related: Why Whole Life Insurance STINKS!!)

4. Market Volatility

The 54% crash in the Dow Jones Industrial Average was only a decade ago, but since then our memory has been blurred by the greatest bull market in history.

Much of investing is based on timing. A big loss can become devastating if it occurs during a distribution period. Active management of portfolios and diversification, particularly after the accumulation phase, is vital. Certain annuities can also provide security and de-risking strategies in retirement years.

5. Health Care

Health insurance premiums continue to skyrocket, and deductibles keep going up. This added exposure can be planned for by using a health savings account (HSA) which allows tax-deductible contributions and tax-free withdrawals for qualifying expenses. In the same vein, long-term care insurance provides a huge what-if for retirement planning.

In closing, before you give a client’s financial plan your bulletproof stamp of approval, be sure to address each one of these threats.

— Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.


Bryan Kuderna (Photo: BK)

Bryan Kuderna, CFP, is the founder of Kuderna Financial and the author of Millennial Millionaire  A Guide to Become a Millionaire by 30. He is a member of the Million Dollar Round Table.

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