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Safeguarding Your Future: The Role of Risk Management in Your Financial Plan

Safeguarding Your Future: The Role of Risk Management in Your Financial Plan

September 11, 2023

This month at DBHW Wealth Partners, we are emphasizing the importance of insurance as a crucial part of your financial plan. Insurance plays a vital role, serving as a tool for investment diversification, predictability, tax advantages and risk mitigation. These benefits help establish a solid financial foundation.

Enhance predictability and security in your financial plan.

Insurance offers predictability to your legacy and estate plan. While the value of other investments may fluctuate over time, life insurance death benefits remain consistent, adding stability to your estate plan.

Enjoy potential tax benefits 

Alongside the tax advantage of growing investments in a cash-value life insurance policy, a well-planned insurance strategy can provide additional tax benefits. In most cases, the death benefit of a life insurance policy is tax-free for the beneficiary. High-net-worth individuals can avoid estate taxes by placing an insurance policy in an irrevocable trust.

Mitigate risk in your financial plan.

Life insurance is commonly used to reduce risk. If the primary income provider in your family passes away, life insurance can help bridge the resulting financial gap. But it can also mitigate risk in other ways. By comparing traditional investments with insurance, you can see the potential advantages. Insurance can provide a larger death benefit if unexpected circumstances arise than a traditional investment.

Remember that life insurance should not be your only risk mitigation tool. It should be used in conjunction with other investment tools. Other types of insurance, like auto and home insurance, protect against the risk of asset loss, while disability insurance provides financial support when the primary income provider is unable to work due to injury or illness.

Consider long-term care insurance as part of your investment plan. 

Explore options such as traditional long-term care insurance or repositioning assets to cover potential long-term care needs. An alternative option is acquiring a life insurance policy that provides accelerated benefits for long-term care.

Diversify your investment portfolio with insurance.

If you find yourself in a higher income tax bracket and have already maximized your contributions to a retirement plan, a cash-value life insurance policy can provide tax-deferred growth. You can access your basis without paying taxes since you are withdrawing your own money. Additionally, policy loans are not considered reportable income.

Including insurance in your financial plan can strengthen your overall financial security and provide stability for yourself and your loved ones. As always, if you have any questions or would like a complimentary, no-obligation consultation of your current insurance policy, contact me and I would be happy to serve you.