For many people, the thought of protecting their wealth is a luxury. It isn’t easy to think about saving for retirement when you’re barely making it from paycheck to paycheck. However, this can end up being a costly mistake. In your lifetime, there may be an event that could wipe out all your money and leave you destitute – like getting sued or losing your job. That’s why it’s essential to start planning for the future now so that you don’t regret not taking care of yourself later on down the road.
Wealth protection is a term used in the financial industry to describe wealth management strategies and tools that help individuals, families, and businesses protect their assets, such as cash. Everyone needs to have protection in place because life doesn’t always go according to plan. For instance, you may be laid off from your job or get into an accident that prevents you from working; without wealth protection in place, this could lead to bankruptcy or foreclosure on your home. It could also be when a business suffers from extended periods of profit losses. The key is understanding what type of related coverage will best suit your needs.
Wealth protection includes many different types of insurance and other strategies such as asset preservation or avoidance of taxes. It also means being proactive in your financial planning to ensure that, as a member, you are covered before something goes wrong! This blog post will explore what wealth protection entails, some common misconceptions about it and how you can start to protect personal wealth!
Wealth Protection is Neglected
It’s always interesting to pick up on common themes that come up in my client review meetings. For example, I have noticed that while most people keep a close eye on the wealth creation side of things and regularly review how their assets are performing, wealth protection is often neglected.
Protecting your wealth should be a fundamental part of your financial planning, which is why I always take the time to discuss this with clients. But, unfortunately, I often find they have no, or insufficient, protection in place. This situation would put their loved ones at financial risk if something unexpected happened to them, namely a gaping hole in monthly finances.
It sounds simple, but if you are not fully aware of how you spend money, you may end up spending more money than you realize. Running yourself to the ground and constantly struggling with an empty bank account leads you one step farther to financial freedom. But don’t worry; there are plenty of wealth protection plans and solutions available to help you get out of debt and give you enough to make a long-term investment that would benefit and protect you, your property and members of your family.
Why You Need Wealth Management
Everyone has their idea of what it means to be wealthy. For some, wealth is about living in a big house, estate or property with all the latest gadgets and wearing expensive designer clothes. To others, wealth means having enough personal money to live comfortably without worrying about making ends meet each month. The truth is that there are many different ways of measuring wealth and lots of factors that determine how much you have or whether you need more or fewer services to help manage your finances.
But the one thing everyone agrees on is that no matter how much money you have, it’s crucial not just for your peace of mind but also for your family’s future financial security to get professional advice from a qualified advisor. They can offer their services to help manage your assets so that they give you maximum return.
Wealth management is the process by which people work together to identify goals and then create a plan to achieve them. With expert guidance from an advisor, you may have more options available than you realize.
Wealth management can also help people reach all their goals and gain more freedom when it comes down to money matters – everyone should have this opportunity for success, whether they’re short term or long term focused.
Life Insurance
The primary way of protecting wealth is life insurance. Having a proper medical coverage plan gives you several benefits. Other types of protective insurance are often also highly recommended – critical illness cover and income protection in particular – but I’m going to concentrate on this specific type of insurance for this article.
The first mistake many expats make is to assume that insurance services from back home remains valid when you relocate abroad, which is often false. Avoid making assumptions – talk to your adviser regarding the terms of your policy and whether your move has invalidated it. It is more likely that you will need to take out a new cover with different benefits adapted to your changed circumstances.
Another common mistake is to fail to keep life insurance cover in line with your actual requirements. Getting married, having a child and buying a home are just some events that will necessitate an increase in insurance or investment funds. A regular life insurance review is crucial to avoid investment risks.
The worst mistake of all, of course, is not to have any life insurance. If this is you, it’s something that you need to rectify as soon as possible. If you’re not sure where to start working out how much insurance you need, here’s a simple outline of the figures to take into account:
- Balance to pay on your mortgage
- Balance of any other unpaid debts
- Estimate of your funeral expenses (not pleasant, I know, but if anything were to happen to you, having this sorted out takes one problem off the shoulders of grieving families)
- Income replacement needs to support your family until they finish school (annual income x number of years)
- Pension income requirements for your spouse
- The total cost of fees and living expenses to put your children through higher education
Add up these amounts and then deduct any savings accumulated and any existing insurance policies you have (through work or otherwise) and voilà, the amount of insurance you need.
The Truth About Insurance
One final mistake many families make is only insuring the family breadwinner. If you have children, both parents need cover, even if they are not currently active earners. Why? Well, imagine having to pay someone to do all the tasks a stay-at-home parent undertakes for a day. Salary.com has tried to put a value on this and have come up with the figure of $162,581 for 2018!
It’s vital to put a realistic value on your life insurance needs now, as underestimating this figure could be costly down the line – you get a much better rate when you are younger. I sometimes recommend multiple, smaller policies to clients rather than one big one as they tailor cover to their specific needs. For example, one policy might cover the children until they become financially independent, while the second is designed to cover a spouse until retirement.
I appreciate that this is not an easy subject to tackle for many people, but it’s second nature to me as a financial planner. If you’re worried about your insurance requirements and calculations, why not get in touch with an adviser to help put in place adequate wealth protection for your family? I can give you peace of mind that you’ve got your insurance nailed; please get in touch with us
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