Protect Your Wealth with Smart Risk Management Strategies
Find peace of mind for yourself and your family by planning ahead for life’s worst “what if” moments. These risk management strategies can help protect your livelihood, your family’s future and your business.
Risk management is planning for the “what if” scenarios that no one wants to occur. What if I become disabled? What if I am subject to a lawsuit? What if I pass away prematurely? These unfortunate scenarios could have a significant negative impact on your family’s financial security.
The hope is that these scenarios never occur, but there are no guarantees they won’t — so planning should be done to protect your financial security if they do. The type and extent of risk management planning, like other areas of wealth planning, depends on your current situation.
Take Care of Your Family by Planning for Income Replacement
What happens if the wage earner in the family passes away prematurely and there are not enough savings to support the family for an extended period of time? Given the current cost of living, many families need two incomes, and the loss of one of those incomes could result in serious financial difficulties.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Risk management planning in this situation is to develop a plan so that there are enough resources to insure your family’s financial security. This starts with building an emergency fund, which provides the temporary funding to support the family. Normally it is a good idea to have enough to cover close to six months of expenses. These funds should be liquid (easily converted to cash) and therefore immediately available.
The emergency fund is only meant to be a temporary source of funds, not long-term financial security. Additional planning will need to be done with the goal of generating enough funds to replace the income of the deceased spouse. Generally, the most cost-efficient way of doing this is by purchasing term life insurance with a large enough death benefit, or disability insurance to provide the income replacement protection needed. A wealth plan can help determine the amount of insurance needed to meet the desired financial goals.
Don’t Leave Yourself, or Your Family, In a Cash Bind
In certain situations, planning will need to be done to generate the liquidity needed to achieve certain goals. For example, say there are two people who are equal owners of a successful business. If something were to happen to either one of them — such as a premature death — neither partner may want to run the business with the deceased partner’s family. One way to avoid this is to enter into a buy-sell agreement funded with life and disability insurance. The buy-sell agreement would likely be drafted to give each partner the right to purchase the deceased partner’s share at a specified price, with the insurance providing the liquidity to execute this option.
And for those with large enough estates that would make them subject to estate taxes, liquidity planning is important to ensure there are funds available to pay the estate taxes. This is especially true for those whose assets are mostly illiquid (e.g., real estate or ownership of a closely held business). By having a plan to provide liquidity (such as purchasing an insurance policy), your family could avoid having to sell assets to pay estate taxes at your death.
Limit Your Legal Liabilities
An important part of risk management planning is not only planning to provide financial security for your family in the event of your passing or disability, but also protecting your assets from other possible risks while you are alive. If you are in a profession that could make you subject to personal liability and lawsuits (e.g., doctors and attorneys), it is important to protect yourself from these litigation risks.
Through the planning process, we can explore the different actions that can be taken to insure the financial well-being for you and your family. Actions such as the creation of qualified retirement plans or certain trusts that can offer a level of creditor protection.
For Peace of Mind, Just Do It
The discussions regarding risk management planning are not pleasant. They are the scenarios we hope never happen. A lack of a wealth plan could have disastrous consequences to your family and could jeopardize their financial well-being. By undergoing the planning process now, you can have the peace of mind that your family will have financial security even if these worst-case scenarios were to occur.
-
Smart Ways to Share a Credit CardAdding an authorized user has its benefits, but make sure you set the ground rules.
-
5 Bruce Springsteen Quotes Every Retiree Should Live ByThe 'Boss' of rock-and-roll has a lot to say about living and getting old gracefully.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You're in the 2% Club and Have a Pension, the 60/40 Portfolio Could Hold You BackIncome from your pension, savings and Social Security could provide the protection bonds usually offer, freeing you up for a more growth-oriented allocation.
-
Bye-Bye, Snowbirds: Wealthy Americans Are Relocating Permanently for Retirement — and This Financial Adviser Can't Fault Their LogicWhy head south for the winter and pay for two properties when you can have a better lifestyle year-round in a less expensive state?
-
Consider These 4 Tweaks to Your 2026 Financial Plan, Courtesy of a Financial PlannerThere's never a bad time to make or review a financial plan. But recent changes to the financial landscape might make it especially important to do so now.
-
We Know You Hate Your Insurance, But Here's Why You Should Show It Some LoveSure, it's pricey, the policies are confusing, and the claims process is slow, but insurance is essentially the friend who shows up during life's worst moments.
-
Is a Caregiving Strategy — for Yourself and Others — Missing From Your Retirement Plan?Millions of people over 65 care for grandkids, adult kids or aging parents and will also need care themselves. Building a caregiving strategy is crucial.
-
6 Financially Savvy Power Moves for Women in 2026 (Prepare to Be in Charge!)Don't let the day-to-day get in the way of long-term financial planning. Here's how to get organized — including a reminder to dream big about your future.
-
Private Equity Is Fundamentally Changing: What Now for Investors and Business Owners?For 40 years, private equity enjoyed extraordinary returns thanks to falling rates and abundant credit. That's changed. What should PE firms and clients do now?
-
I'm a Real Estate Expert: 2026 Marks a Seismic Shift in Tax Rules, and Investors Could Reap Millions in RewardsThree major tax strategies will align in 2026, creating unique opportunities for real estate investors to significantly grow their wealth. Here's how it works.
