Wealth Accumulation is at Risk Without Wealth Protection

Having your clients consider long-term care and disability insurance are an easy and inexpensive ways to protect against the depletion of their assets when they can no longer work.

In May, Money magazine’s cover story was an informative article titled “101 Ways to Build Wealth.” The article highlighted the most useful tips at various ages to accumulate wealth. Unfortunately, the article did not touch on two very important aspects of preserving wealth: Long-term care and disability insurance.

When it comes to wealth, keeping it should be as important (if not more) as building it. And while leveraging compounding-interest and smart investment tactics are great, you also need to earn income in order to invest it.

Further, Americans are living longer and retirees may have another thirty to forty years of vitality left in them. Many risk seeing their investment plans and retirement accounts that they had so carefully grown begin to fall apart when medical needs become a priority.

“How long can you go without income?”

In the Money article, the author asserts that an investor should have enough money set aside to live for six months without income. Most of the clients our RIAs bring to us follow this same advice, but the real question is what happens when the time without income is longer than six months? A year? Five years?

Disability insurance provides an income if a person can no longer work because of an injury or illness. Disability insurance policies are flexible, and they depend on the type of work the client does.

  • Baseline coverage provides a safety net that can prevent a sudden depletion of assets in the event of a catastrophic illness or injury;
  • People who have had extensive training, like doctors or lawyers typically opt for more robust policies since their training and education is very specific;
  • For investment bankers or 'C' executive level positions, they may need coverage for high commissions or bonus structures not covered by employer plans.
  • Long-term care insurance accomplishes the same goal of protecting the investor’s assets, but in different circumstances. While disability insurance is something almost everyone who works should have, we typically do not recommend obtaining long-term care insurance until someone is in their 50’s (unless there are unique circumstances). However, new and innovative products have become available that offer a hybrid of coverage that covers both living health care expenses and after death expenses.

    Life insurance with a long-term care rider is often the solution younger people choose as opposed to long-term care insurance. The advantage to obtaining this type of insurance sooner rather than later is mostly found in the lower premiums younger people pay for life insurance.

    The only way an insurance plan will actually work is if it is tested under every circumstance. Even very wealthy individuals can feel the cascading effects of expensive medical care or lost income on their financial planning.

    Insurance is an important element to building wealth and keeping it.