Don’t Rock Climb Without a Rope

October 27, 2020

You wouldn’t go rock climbing without a rope – would you? Sure, it may not be quite as exhilarating, but if there is a tool to help you from falling to your death, it would make sense to invest in it. The rope helps to manage risk just like various types of insurance in your financial life.

I commonly am asked about various types of insurance by financial professionals (private equity professionals, investment bankers, and asset managers). Often, because someone in their network is trying to sell them some type of insurance. But not all insurance is bad – in fact, just like the rope, it can be a lifesaver when it comes to your financial plan. Insurance can sometimes be complex, but many times it can be the basic policies that can manage your risk appropriately.

Below are the three main policies that can set yourself up for a successful climb to the top:

Umbrella Insurance: This policy is often overlooked, but can be one of the most beneficial, especially in today’s litigious society. Umbrella insurance, as its name would suggest, sits on top of your home and auto policies to help cover any lawsuits that may come because of an accident at your home or in your car. This policy can cover both the attorney fees as well as the actual settlement of the case. When working with financial professionals, for many who are often “Google-able” this policy can be very wise to own. Generally, having a policy that covers your total assets can be a good place to start.

Disability Insurance: One of the worst things that can happen is an accident causing disability and an inability to work in a similar capacity – disability insurance can help cover that risk. Many financial firms offer some level of disability insurance as a benefit to their employees, but it can also be purchased in a separate policy. Disability insurance should be analyzed alongside your monthly budget to determine how large the policy should be. The coverage, alongside any passive income, should cover basic living expenses.

Life Insurance: This policy is most targeted to sell to financial professionals. Life insurance can come in a variety of different flavors that all have practical uses based on unique situations. For most clients, we think of life insurance as a replacement for income from premature death. Commonly, the best policy to replace that income is term insurance. Term insurance is relatively inexpensive compared to other life insurance policies and can be utilized to cover the need during the time that you need replacement of income – your working years. The flexibility to pinpoint this alongside the relative cost is very desirable.

All these insurance policies should be reviewed in tandem with your unique financial plan and with the help of an insurance professional. Once you review the options, you will see that insurance can be the rope that helps you feel confident on your own personal financial journey. You need to find a rope that is made for you to help you up the mountain. So, before you embark on that climb, be sure to check your pack for your rope!

Matt Kocanda is a Wealth Manager at BDF and a member of the Investment Committee. The investment committee develops BDF’s overall investment strategy. Matt focuses on advising Financial Service Professionals through their complex needs – including cash flow, tax, or estate planning. Matt received an undergraduate degree in Finance from Indiana University.