Many professionals dedicate substantial time and effort to growing their wealth through , tax strategies, and equity compensation. While accumulating wealth is a crucial part of financial success, protecting what you’ve built is just as important. Yet, too often, key financial protections are overlooked, leaving individuals vulnerable to unforeseen circumstances.

If you want to ensure long-term financial security, make sure estate planning, disability insurance, and umbrella insurance are part of your financial plan.

Estate Planning: Protecting Your Legacy and Loved Ones

Estate planning is more than just having a will; it’s about ensuring that your financial wishes are carried out and that your loved ones are protected if something happens to you. Without an estate plan, your assets may not be distributed as intended, and your family could face unnecessary legal and financial hurdles.

Key Components of an Estate Plan

• Will and Trusts: A will outlines how your assets should be distributed and who should care for your minor children. It is important to understand that anything passing through a will is subject to probate, which is expensive, public, and time consuming. Revocable trusts can help streamline the process, avoid probate, and provide more control over asset distribution.
• Financial Power of Attorney: A durable financial power of attorney allows another individual to handle your financial affairs if you are unable or unwilling to do so on your own, without your having to be declared incompetent. These documents are often held by your attorney securely until they are needed, which protects your privacy but avoids the lengthy process of trying to contact doctors for permission during a medical emergency.
• Health Care Proxy/Power of Attorney: A health care power of attorney (aka health care proxy) allows a trusted individual to make medical decisions on your behalf.
• HIPAA Release: A HIPAA release ensures that designated individuals can access your medical records. Practically speaking, this allows your loved ones to call the hospital to find out your condition. Without this document, the hospital is not allowed to release any information to them.
• Guardian Designation in a Will: If you have minor children, naming a guardian in your will is essential to ensure they are cared for by the person you intend.

Implementing Your Estate Plan

Drafting these documents is just the first step. You also need to:

• Update beneficiary designations on retirement accounts, annuities, and life insurance policies.
• Retitle accounts if you have a revocable trust. This usually applies to your bank and investment accounts as well as your real estate.
• Add transfer on death (TOD) and payable on death (POD) designations to applicable accounts. If you don’t have a trust, you can add a beneficiary to most bank and investment accounts. It is important to note that the beneficiary designation does not assist you with incapacity planning, which is why a revocable trust can be preferable.

Neglecting to implement these steps can undermine your estate plan, potentially leading to unintended consequences, such as assets passing to the wrong beneficiaries or your estate being tied up in probate. It is not enough to simply get the documents drafted; you have to follow through and ensure everything is properly implemented.

Disability Insurance: Protecting Your Income and Lifestyle

Your ability to earn an income, also known as your financial capital, is one of your greatest assets. While many professionals prioritize life insurance, far fewer consider disability insurance, even though the likelihood of experiencing a disability before age 65 is often higher than that of passing away before the age of 65.

Why Disability Insurance Is Essential

Disability insurance replaces a portion of your income if you’re unable to work because of illness or injury, ensuring financial stability during challenging times.

Comparing Short-Term vs. Long-Term Disability Insurance

Disability insurance comes in two primary forms: short-term and long-term disability coverage. Understanding their differences can help determine what coverage you truly need.

Short-Term Disability Insurance

• Covers illnesses and injuries lasting fewer than 90 days.
• Typically replaces a larger portion of your income for a short duration.
• Often provided by employers as part of a benefits package.
• May be unnecessary for those with a fully funded emergency fund or significant financial assets, as they can cover short-term expenses out of pocket.

Long-Term Disability Insurance

• Kicks in after a waiting (elimination) period, which typically lasts 90 days.
• Provides coverage for prolonged disabilities that could last years or even a lifetime.
• Replaces a portion of income: typically between 50% and 70% of pre-tax earnings.
• Is crucial for professionals who depend on their income to meet long-term financial goals.
• May have possible coverage limits (often capped at $15,000/month), portability issues, and tax implications on employer-sponsored policies.
• Creates taxable benefits if you don’t pay the premiums yourself (i.e., if your employer pays them) or if the premiums are paid with pre-tax dollars.

Who Needs What?

For those with a robust emergency fund and substantial savings, short-term disability insurance may not be necessary, as they can self-insure for a temporary illness or injury. However, long-term disability insurance is essential for most working professionals, as the financial consequences of an extended disability could be devastating.

Individual Disability Insurance

High-earning professionals earning over $400,000 per year may want to consider an individual disability insurance policy. Consider an individual disability policy that:

• Offers customizable coverage tailored to your needs.
• Is portable, staying with you even if you change jobs.
• Replaces 50% to 70% of your pre-tax income.
• Provides tax-free benefits if premiums are paid with after-tax dollars.
• Discounted premiums can often be found through professional associations.

Understanding Policy Definitions

One of the most important aspects of a disability insurance policy is its definition of disability. This is because the way your policy defines “disability” affects your eligibility for benefits.

• Own Occupation: Pays benefits if you can’t perform the material and substantial duties you’ve been trained to perform, even if you can or are working in another field.
• Modified Own Occupation: Pays if you can’t work in your profession and aren’t working elsewhere. Typically, you’ll lose benefits under a modified own occupation policy if you get a job in a different field.
• Any Occupation: Pays only if you can’t work in any job you’re reasonably suited for. This is the most restrictive definition and is similar to Social Security’s definition of disability.

Getting an own occupation policy is the safest option with the highest chance that you’ll receive a benefit from your policy if you become disabled. That said, you tend to pay more for an own occupation policy than you will for the other two.

If you are a working professional whose financial situation relies on your ability to earn an income, long-term disability insurance is a must-have to protect your lifestyle and family’s financial situation.

What Is Umbrella Insurance?

Think of umbrella insurance as an extra layer of liability coverage that protects you when unexpected lawsuits or claims arise. If you’re found liable in an accident, legal judgment, or other covered event, umbrella insurance covers costs that exceed your auto, homeowners, or renters insurance limits. It is known as umbrella insurance because it hovers over your underlying homeowners, auto, or renters coverage, providing additional protection – much like how an actual umbrella provides additional protection from inclement weather.

 Is Umbrella Insurance Worth It? Here’s Why It’s Worth Considering

• Affordable Coverage: Policies typically start at $1 million in coverage for a relatively low premium.
• Asset Protection: Shields your savings, investments, and property from liability claims.
• Lawsuit Protection: Helps cover legal fees, settlements, and judgments.
• Coverage for Additional Situations: Protection may extend to defamation, slander, and certain personal injury claims.

Who Should Consider Umbrella Insurance?

• Homeowners with significant assets.
• High-income professionals with potential liability exposure.
• Parents with teenage drivers (who statistically pose a higher risk for liability claims).
• Anyone who hosts guests, rents property, or participates in activities with liability risks.
• Anyone with assets to protect.

Just about any individual who drives a car, owns a home, or has people over to their apartment should have umbrella insurance. This is even more important considering how litigious our society is. Without umbrella insurance, a single lawsuit could wipe out your financial progress, making this coverage an essential part of a solid financial plan. While coverage often starts at $1 million, we often advocate our clients get the most umbrella coverage they can afford to ensure they have sufficient protection in case of a lawsuit.

The Bottom Line: Protecting What You Have Built

Accumulating wealth is just one part of financial planning; protecting it is equally crucial. Estate planning, disability insurance, and umbrella insurance serve as financial safeguards that ensure your hard work is not unraveled by unforeseen circumstances.

Three Steps Working Professionals Can Take Today

1. Review Your Estate Plan: Ensure that you have the right documents in place and that they are properly implemented.
2. Assess Your Disability Insurance Coverage: Determine whether your employer’s policy is sufficient or additional coverage is needed.
3. Consider an Umbrella Insurance Policy: Evaluate your liability exposure and ensure your assets are adequately protected.

Financial success isn’t just about growing wealth; it’s also about securing it for the future. By addressing these often-overlooked areas, you can build a comprehensive financial plan that stands strong in the face of life’s uncertainties. If you would like assistance protecting your family’s financial future, please reach out to our team. You can read more about how a financial advisor can help you and how to choose the right one for your family here.