Chapter 5: Risk Management Matrix
The way to see activities through a risk management lens is to go through some ideas of your own, like my example of the car accident, and discuss or jot down the ways in which that risk could have been managed with each of the four methods. It doesn’t have to be something as dramatic or painful. It could easily be a risk management success story that you can now better understand.
Examine both the personal and the financial risk using all four of the risk management techniques. After doing that exercise, discipline yourself to analyze a few other examples throughout the course of your days. If you’re bold enough, teach the technique to a friend or family member (there’s no better way to learn something than to teach it). Eventually, it won’t be work, and you’ll see your options more clearly. Then, when you examine your existing insurance products or new offerings, look for ways you can reasonably avoid, reduce, or assume the risk before paying someone else to do it for you.
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Chapter 6: Life Insurance Audit & Life Insurance Needs Analysis
Timely Application #1: Life Insurance Audit
The first step in your personal insurance analysis is to figure out what you own (or have) currently by conducting a Life Insurance Audit. Yes, it’s possible to have some even if you didn’t buy any as most companies give you a relatively small group life insurance policy at no charge.
Collect all of your existing life insurance policies and the most recent annual statement corresponding with each. These documents are filled with legalese and jargon, but they also contain almost everything you need to know about your policies. Create a chart using the template provided on our web site with the pertinent information from your policies, including the following: inception date, type of insurance (term, whole life, universal life, or variable life), length of term, death benefit, cash value, and surrender value.
There are two additional documents associated with permanent life insurance policies (whole life, universal life, and variable life) for which you’ll need to contact the insurance company. These are an In-Force Illustration and a Cost Basis Report. I recommend calling the company’s customer service number instead of calling your agent directly, because most agents know the request for these two documents is often the indication someone is investigating the viability of the policies they sold. (They’re right.) At the least, their judgment is being called into question. At most, they may also be losing residual commissions.
The information you collect will be combined with your Timely Application at the end of this chapter to help you conclude which policies you should keep, what additional policies you may need to apply for, and which policies you should surrender. (NOTE: You should never surrender any existing life insurance policies until you have determined your needs and applied for any additional insurance needed.)
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Timely Application #2: Life Insurance Needs Analysis
Using the demographic templates in this chapter and the calculator for Insurance Needs Analysis on our web site, determine what your needs are for final expenses, debts and mortgages, education, and income replacement. Contrast what you found in your Life Insurance Audit and your Life Insurance Needs Analysis in order to get an idea for your next steps.
If you conclude that you have policies you don’t need or want, and you’ve confirmed your research with an independent planner who does not accept commissions on the sale of life insurance, then you have several options for terminating your policies. But don’t make those decisions hastily. Even if you shouldn’t have purchased the whole life insurance policy you bought 15 years ago and don’t need or want it now, in some instances it will make sense to keep it. Requesting an “In-force Life Insurance Illustration” and a “Policy Cost Basis Report” from your agent (or the insurance company’s home office) will help you and your independent planner determine whether the policy should be kept or surrendered based on the investment value, future prospects for growth, stability of the insurer, and tax consequences of liquidating.
Especially in these economic times, it is important to ensure that every dollar of yours is working hard for you, and that includes the dollars channeled toward life insurance.
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Chapter 7: Home & Auto Insurance Audit
In order to know if your home and auto insurance policies are providing you with the appropriate levels of coverage, you’ll want to collect the declaration pages for all of your home, auto, condo, and renter policies. The Application Exercise online will provide a chart to fill in your various coverage limits next to our recommended minimum limits.
After you’ve tailored your desired limits with the help of an independent planner who does not accept commissions or referral fees for the sale of insurance, you can use the Application Exercise to shop your coverage with several carriers.
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Chapter 8: Disability and Long-Term Care Plans
This Timely Application will help you complete your Health and Money Audit. This exercise is a three-step process. Step 1 is to determine what you need. This is accomplished by writing out a Disability Plan if you are in your 30s, 40s or 50s. If in your 50s, 60s, or beyond, you need to articulate your Long-Term Care Plan. Start the process by writing out a paragraph beginning with the following sentence: “If I became disabled [suffered a long-term health care incident], here’s how I would handle that financially: …” We’ve provided space to do so in our online exercises for this chapter.
Step 2 is to establish what you already have. The online exercise includes a template with spaces to fill in for the primary features mentioned in this chapter. Once you have completed the template, you’ll better understand the coverage you have. Step 3 is to determine what you actually need and want and quote to find the best coverage. You’ll be better prepared for the engagement with the insurance agents because your template will ensure you’re comparing apples to apples, a very difficult thing to do in DI and LTC.
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I’m a speaker, author, Head of Wealth Management for Triad Financial Advisors. Connect with me on Twitter and LinkedIn.