6 Ways Insurance Can Strengthen Your Financial Plan

Insurance and Your Financial Plan

In this blog article, we’ll explore how insurance can enhance your financial plan and help you reach your goals, particularly as your net worth increases.

When it comes to achieving long-term financial goals, the spotlight tends to fall on the accumulation and growth of assets. However, building wealth is just one side of the coin. An equally critical aspect of the financial planning process is the preservation of wealth.

Indeed, incorporating risk management mechanisms such as insurance into your financial plan can add stability, providing an extra layer of security that helps protect your hard-earned assets from unforeseen setbacks. At the same time, a thoughtful insurance strategy can help ensure that your financial journey remains on track over the long run.

#1: Insurance can protect your assets and reduce risk.

No matter where you are on your financial journey, insurance can help reduce your overall risk exposure if you experience an accident, health issue, or even a lawsuit. However, proper insurance coverage becomes increasingly critical as your net worth increases since you have more to lose in the event of an unforeseen setback.

For example, if you own a home or other valuable property, insurance can help protect you from excessive financial losses. According to the Insurance Information Institute (III), about 5% of homeowners make an insurance claim each year due to property damage, liability, or other reason, highlighting the value of a robust policy.

Meanwhile, the odds of becoming the target of a lawsuit—frivolous or otherwise—often increase as you accumulate more wealth. As a result, liability insurance tends to become more valuable the wealthier you are, as it can help cover legal expenses and potential settlements if someone takes legal action against you.

Most homeowners and auto insurance policies offer liability coverage up to a certain amount. Yet depending on your net worth, you may also benefit from an umbrella policy.

Generally, you should consider purchasing umbrella insurance when your assets exceed the combined liability limits of your home and auto insurance policies. The average umbrella policy costs between $150 and $300 per year for every $1 million in coverage, according to data from III, providing an additional safety net in a worst-case scenario.

#2: Insurance can add predictability and stability to your financial plan.

Life is filled with unexpected events. From medical emergencies to sudden home repairs, surprises can quickly throw your financial plan into disarray.

Even if you have a robust emergency fund, some expenses are simply too massive to cover out of pocket without derailing your progress toward longer-term goals. With the right insurance strategy, an unplanned setback is less likely to undo years of financial progress.

For instance, suppose you own a business that generates the majority of your household income. However, your business earnings are dependent on your involvement in the company.

If you experience a sudden illness or injury, you may not be able to continue earning the same income. This can create countless financial hurdles for your family, who depends on your income to pay fixed expenses and fund your financial goals.

Data show that 5.6% of working Americans experience a short-term disability every year. But with disability insurance, you may be able to recoup a portion of your income you’re unable to work, thereby providing a financial safety net.

Similarly, life insurance can add stability to your financial plan if you have loved ones depending on you financially. The death benefit can replace lost income, pay off debts, and even cover funeral expenses, ensuring that a tragic event doesn’t lead to financial hardship for your family.

#3: Insurance can enhance your estate plan.

Estate planning isn’t just for the ultra-wealthy; it’s crucial for anyone who wants to leave a financial legacy, distribute assets, or make the lives of their loved ones easier after they’re gone. In this regard, insurance can play an instrumental role in fortifying your estate plan, providing financial benefits that extend beyond your lifetime.

For example, long-term care costs can be one of the biggest drains on an estate, particularly if you require specialized care or a nursing home during your lifetime. In certain circumstances, long-term care insurance can help cover these costs, preserving the value of your estate for your beneficiaries.

In addition, a life insurance policy can significantly benefit your heirs by providing a lump-sum payment they can use in various ways, from paying off debts to covering estate taxes. Without this benefit, they may need to liquidate part or all of your estate to cover such costs, which may require them to sell off assets like property or investments at inopportune times.

#4: Insurance may provide tax benefits.

In some cases, insurance can play a pivotal role in your overall tax strategy, providing various tax advantages that can benefit you during your lifetime, as well as your heirs after you’re gone.

During your lifetime, your insurance premiums may be tax-deductible depending on the type of insurance and current regulations. For instance, health insurance premiums are generally tax-deductible in the United States, up to a certain limit.

After your lifetime, the death benefits from any life insurance policies you hold are usually tax-free for your beneficiaries. This can be especially helpful if your estate is large enough to potentially trigger federal or state estate taxes, which can significantly reduce your beneficiaries’ inheritance.

#5: Insurance can help secure your retirement.

Retirement should be a golden period where you get to enjoy the fruits of decades of labor. Yet achieving a financially secure retirement requires meticulous planning and strategic decision-making.

While many focus on savings, investments, and Social Security when preparing for retirement, insurance is also crucial for ensuring that your post-work years meet your expectations.

For instance, the right health insurance coverage in retirement is essential to offset the rising cost of healthcare. Indeed, the average 65-year-old retired couple may need roughly $315,000 to cover healthcare expenses, according to a 2022 Fidelity report.

Even if you qualify for Medicare, supplemental health insurance is often necessary to fill in the coverage gaps, so that out-of-pocket expenses don’t deplete your savings. This may also include long-term care insurance, as Medicare doesn’t cover most long-term care services.

#6: Insurance can give you financial peace of mind.

At its core, insurance is about reducing financial stress. Knowing that you’re financially protected in case of loss or hardship allows you to live life with a little less anxiety and a lot more freedom.

Furthermore, insurance provides a certain level of financial stability, allowing you to take calculated risks like investing in the stock market. In many cases, the rewards that come from taking such risks can be the key to achieving your financial goals and aspirations.

As your life and financial circumstances change, it’s crucial to review your insurance coverages to ensure they continue to meet your needs and align with your financial goals. While Benchmark Wealth Management doesn’t sell insurance policies, we can offer valuable insights into assessing your insurance needs and integrating them cohesively into your broader financial plan. Please contact us to learn more.

The views expressed are those of the author as of the date noted, are subject to change based on market and other various conditions. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results.


About Rick

Richard W. Stout III is managing director of Benchmark Wealth Management, LLC, with 25 years of experience in the financial industry. He specializes in financial planning and asset management for individuals, families, and institutions seeking to build and monitor durable and sustainable plans for their financial futures. Rick is a Certified Financial Planner™ professional and holds the Accredited Investment Fiduciary® (AIF®) designation. He obtained his MBA from Rensselaer Polytechnic Institute and his BA in Economics and Anthropology from the University of Connecticut. Rick has earned a Master of Science degree in Personal Financial Planning from the College for Financial Planning. He has extensive background experience in lending, credit review and analysis, and real estate and partnership management. Learn more about Rick by connecting with him on LinkedIn.

About Thomas

Thomas J. Britt is managing director of Benchmark Wealth Management, LLC, with 23 years of experience in the financial industry. He specializes in executive financial planning, retirement planning, investing, as well as the management of trusts and endowments. Thomas is a CERTIFIED FINANCIAL PLANNER™ professional. He holds the Master Planner Advanced StudiesSM, MPAS®, Certified Investment Management Analyst® (CIMA®), and Chartered Retirement Planning Counselor℠, CRPC® designations. Thomas earned a Bachelor of Science in Finance from the University of New Haven, an MBA in financial technology from Rensselaer Polytechnic Institute, and a Master of Science in Personal Financial Planning from the College for Financial Planning. He is also a proud veteran of the United States Navy Submarine Force. Learn more about Tom by connecting with him on LinkedIn.

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