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Families and Businesses Not Protected Because Insurance Viewed As Expense

June 5, 2008

Families and Businesses Not Protected Because Insurance Viewed As Expense, Not Asset, Says Expert Clay Mosley.
The majority of Americans are underinsured when it comes to their insurance plan. The reason is because most people view insurance as an expense instead of an asset. If people viewed their insurance portfolio as an asset and identify the value of possessing insurance, they could easily have a sufficient and efficient portfolio.

The majority of the U.S. population is unaware that their families are at risk every single day because they do not have a proper risk management portfolio. Most people view insurance as an expense, and, therefore, cause them to purchase the least expensive product and the least amount of protection, if any.

Clay Mosley, an expert in the insurance and financial services industry, says that if Americans viewed their insurance as an asset and manage it just like an investment portfolio, they would have a sufficient insurance plan. It astounds him that investors actively manage their retirement, savings, and investment accounts but do not ensure they do not lose them in case of liability lawsuits, death, disability, and other such events. It also surprises him that a lot of insurance agents and financial advisors overlook this step in the planning process.

“People have to be careful when choosing an insurance or financial professional. It’s not difficult to be licensed to sell financial products; however, it is difficult not to sell out of your own wallet. Many professionals do not maintain their fiduciary responsibility to do what’s best for the client,” says Clay.

Clay gives a perfect real-life example of someone having the state minimum liability limits on automobile and homeowner policies. If someone had an at-fault automobile accident with a second vehicle and injuring the other driver, what will the insurance company pay? The answer is up to the limits of a person’s liability limits. If the liability limits are $25,000 for medical bills and $25,000 for property damage, what would happen in the previous example if the claimant’s $40,000 vehicle was totaled and the claimant sustained $100,000 in medical bills? There is a greater risk of a liability lawsuit arising and the at-fault party’s assets would be at risk. Clay has personally seen this happen where someone had an at-fault accident injuring a neurosurgeon, quite possibly the most expensive person to be liable for.

Another point Clay brings up is the fact that financial planners do not utilize a personal liability umbrella policy, or PLUP. In his opinion, it is the most underutilized planning tool that is a very simple and inexpensive. A PLUP is a blanket liability policy that takes action when all underlying liability limits (auto and homeowner policies) are exhausted. PLUPs are usually issued with face amounts no less than one million dollars. They usually only costs a few hundred dollars a year, a planning tool worth much more than a few hundred dollars. Clay recommends a PLUP for clients with a net worth of $250,000 or more.

“From my experience, about 95% of Americans are underinsured when it comes to their life insurance portfolio. Usually, the ones who purchase life insurance are the ones who find themselves in a situation where it’s too late because they developed a health condition, ones who lost a family member, or ones who educate themselves on the many uses of life insurance,” says Clay.

Clay explains, “There are three main purposes of life insurance…debt replacement, income replacement, and business succession.”

Clay goes on to explain that the number one misconception is that group life insurance at work is sufficient and permanent. There is a good chance that the amount of life insurance that companies offer is not sufficient. If an employee is married with children and the employee is the breadwinner of the family, there would be a great need for debt and income replacement since the spouse would not be able to afford the usual standard of living. Who would pay the bills? Would additional services be needed such as housekeeping, babysitting, etc.?

For business succession, each business partner of a mutual business would need a buy-sell agreement to buy out a partner’s portion of the business to the respective family members. Family members of the business partners may be dependent on the business income. Would the other business partners be able to purchase another partner’s interest in the company in the case of a death? This is where buy-sell and cross-purchase agreements are important.

Clay adds a final note, “Putting together an insurance portfolio can be very complicated. Each person, family, or business needs to have a customized portfolio that meets the suitability as well as affordability of the client. By having an efficient risk management plan and debt and income replacement plan and reviewing it on a regular basis, people can ensure their assets, families, and businesses are protected.”

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Written by Be Safe Insure · Filed Under 2. Personal Insurance 

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