Wealth Preservation Insights: Personal Risk Management Strategies

You spend most of your life building and acquiring assets to provide for yourself and your family. In today’s uncertain economic times, personal risk management has become a vital component of a cohesive wealth management strategy for affluent individuals.

Insurance is often overlooked and undervalued, which causes gaps in coverage and increases exposure to unnecessary risk. The goal of insurance programs for affluent families is to preserve assets and protect the family for the future.

Creating a sound risk management strategy

As you go through life, the financial and personal risks you encounter grow—in number, complexity and financial severity. Just like a well-designed portfolio, our lives need wealth preservation strategies that ensure that our activities and assets are protected from the threats they expose us to. Your risk management strategy plays a critical role in protecting your legacy and preserving what you have worked so hard to achieve.

Regularly reviewing your wealth preservation plan ensures that you’re able to recognize and quickly deal with any risks that might creep into your life. An effective wealth preservation process for an individual or family includes several steps, including risk identification, mitigation, transfer and management.

Protecting homes, vehicles, and other belongings

Home - A sewer backup can damage floors, walls, furniture and electrical systems. Standard homeowners insurance typically does not cover sewer backups, so consider adding endorsements to your policy for these kinds of risks. “Guaranteed replacement” and sewer backup coverage is crucial for substantial homes. “Guaranteed replacement” coverage pays the full cost of rebuilding your home and other structures on your property after a covered total loss—even if that amount exceeds your policy limit.

Belongings - Make sure your jewelry, antiques and other luxury items are covered under your homeowners insurance in case you experience an unfortunate loss. If your homeowners insurance is amended to cover extensive assets, your policy will typically have higher coverage limits and greater protection for valuables than a standard policy. However, high-net worth policies have limits as well and may require extra measures to protect your valuables. Therefore, “scheduling” or itemizing your valuables is a proven way to effectively secure the coverage you may need for specific items and is a significant advantage over your broad-based homeowners’ policy.

Vehicles and “agreed value” – The proper kind of insurance coverage is vitally important if you’re driving an expensive, exotic or high-performance car, which requires special parts, paint and repairs. Repairing a high-end vehicle without the recommended parts or improper workmanship will result in substantially diminished value. If the insurance company agrees to total your car, most insurance policies only provide “actual cash value” insurance coverage, which would only give you a payment based on the current replacement cost of your vehicle, minus depreciation (the decrease in the value of your car due to use, deterioration and the passage of time). If an exotic or high-priced car is totaled, the best replacement coverage is “agreed value” or “stated value”. You will need to work with a high-net worth insurance consultant for this.

Personal umbrella – Imagine a jury finds you negligent when your neighbor loses their life in an ATV crash, using your vehicle on your property. You’re sued for $10 million, but your insurance only covers up to $500,000 in damages. Who’s responsible for the other $9.5 million? You could be—and those costs could come out of your pocket. Personal umbrella insurance may provide coverage to mitigate those additional costs.

Protecting your legacy

For many affluent individuals, the financial legacy they leave behind is an extremely important issue. Therefore, you want to make sure that nothing jeopardizes what you have worked so hard to achieve.

Estate planning is more important now than ever. Without proper planning, you could lose a large share of what you have spent your whole lifetime accumulating. Because estate planning is about making sure your assets are distributed as you wish, both now and after you are gone, you need to consider some important questions before you begin, such as:

• How many people are dependent on your current earning capacity?

• Have you coordinated your life insurance plans with your estate plan?

Many people have life insurance policies that are not matched to their estate planning goals. Between the typical set-it-and-forget-it mentality and a simple beneficiary approach many people take, a neglected life insurance policy often fails to achieve the goals that initially led to the purchase of the policy. For example, you might think your life insurance is entirely separate from your other assets. As a result, you fail to adequately account for this asset in your estate plan, missing opportunities to provide for your family. However, you will often identify these vulnerabilities with a full review of your estate plan, so you can correct them before any negative outcomes occur.

To learn how to grow and manage your wealth, visit https://www.associatedbank.com/wealth-management or Connect with an Advisor.