Jeremiah Barlow on The Importance Of Insurance In Financial Planning

Jeremiah H. Barlow

JD, Head of Family Wealth Services


As originally published on Financial Advisor.

As we all watched in amazement this past year as the wealth space evolved and changed from seminal events, including a once in a century pandemic, some things have remained the same. Most notably, the importance of the financial planning process in putting together a strategic approach to optimizing clients’ financial resources while protecting them from seen and unseen risks.

What's Old Is New Again--The Importance Of Insurance In Financial Planning

The inventors of financial planning over 50 years ago knew to include a comprehensive approach to consider all aspects of personal finance, with much of its early roots based in the insurance world. And while some of the sexier topics such as investing tend to get most of the attention these days, particularly as we are seeing wild swings in the markets driven by speculative trends, it is the less exciting components such as insurance planning that can have a tremendous impact on a clients’ overall financial success.

Historically, many RIAs have shied away from offering direct advice on insurance products and being involved in the process due to fiduciary concerns and regulatory complexities; and that made business sense. However, at what cost for clients’ well-being? Particularly as there has been much innovation in creating fee-only products, removing commissions from transactions and integrating insurance platforms into RIA businesses, and the potential for RIAs to include insurance as a core offering are now more available than ever before.

Often, RIAs construct comprehensive plans for clients and work directly on the implementation of most of those recommendations. But when it comes to protection and risk management, many firms refer their clients to outside professionals and insurance brokers hoping that things will go according to plan.

But as we know, rarely do things go according to plan when not managed in a comprehensive approach. According to reports, people have been “panic buying” life insurance during the pandemic to protect themselves, their families and their businesses from the potential of a deadly infection. In fact, searches for “life insurance” on Google jumped 50% during the pandemic vs. the same period one year prior. As we know, anytime someone makes a financial decision in “panic-mode” they tend to short cut the process to determine if the product they are buying is appropriate, is for the right amount and has a strategic fit to their overall financial situation and goals. Now more than ever, people need comprehensive advice when it comes to their insurance needs.

Insurance companies are experiencing record volumes, meaning that the topic is top of mind for investors and advisors should be addressing this issue as part of their financial planning process. The upside for advisors is quite dramatic—and we are seeing it play out in real time at our RIA firm. We launched our own Insurance Solutions as part of our Family Wealth Service offering late last year, resulting in fantastic feedback from clients and our advisors as they are now able to work with clients on these insurance issues, deepening relationships and differentiating our service offering.

Clients don’t need multiple advisors any more, they can simplify their finances in working with just one professional. There is a business benefit too, in that this often leads to consolidating their assets, which brings in even more new business because we are able to work with them on their insurance needs.

Some insurance planning opportunities we are seeing are going beyond the traditional life insurance and estate planning arena to also include property and casualty. The opportunity to add value to your client in this area is quite dramatic. For many high-net-worth individuals, no one has taken a close look at their coverages in years as it relates to their physical assets, real estate, collectables and even digital assets. They have been accumulating things over the years without a strategic focus as to their risk exposures. When they do realize that they have gaps in their coverage, they are extremely appreciative that their advisor is going above and beyond to provide them with that insight and advice.

Additionally, for clients living in certain parts of the country the increase and velocity of natural disasters are increasing and the potential for a catastrophic event has them worried and wondering if they have enough coverage. For example, for people living on the west coast and the southwest, the frequency and size of wildfires has been nothing short of terrifying. And for those living or having properties in the south and south east they are seeing ever more powerful storms during an ever-lengthening hurricane season.

Other insurance planning opportunities we are seeing are being created from clients asking “what if” questions around health issues, such as long-term care and disability coverages. One of the more frequent questions we are getting is, “Is Covid covered by disability policies?” The short answer is yes, but the fact that clients are asking these questions shows how top of mind insurance is becoming.

Estate planning is also a big contributor to insurance planning advice. While we don’t know what the government will do when many of today’s high estate tax limits sunset in 2026, there still remain many areas that planning techniques with insurance make sense, such as ILITs, SLATs, gift outs and more.

Ultimately, insurance planning is becoming an incredible opportunity for advisors to expand their service levels and cement client relationships by providing a truly comprehensive experience, further differentiating themselves from the competition. As they say, what’s old is new again, particularly as the rate at which the financial planning profession is changing continues to accelerate.

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