Risk Management

Risk Management Strategies

Unexpected changes in lifestyle and health carry the risk of reducing seniors’ assets and income and potentially causing a shift to a lower income group or standard of living.

Many baby boomers find themselves part of the sandwich generation, facing the financial burden of caring for elderly parents while financing children through college. Thus, a client’s plan to retire, investment strategies, life insurance coverage, and estate plan should be evaluated with family considerations in mind.

Even though modern medicine has made tremendous advances that help to increase longevity and keeps seniors in good health, seniors eventually may become unable to maintain their good health. Life insurance is, of course, one tool to help with this area of risk management.

However, the bigger problem for many is one of incapacity rather than death. Without proper planning, an extended period of incapacity will certainly diminish, if not outright deplete, an individual’s assets. If your clients are faced with incapacity or reduced ability to perform activities of daily living, they will likely need greater resources to provide income for appropriate postretirement living.

Four Ways to Handle Risk

There are four basic methods of handling risk: avoidance, reduction, retention and transfer.

  1. Risk Avoidance: Generally, risk avoidance means not taking part in some activities that might be considered risky. For example, if you don’t want to get hurt skiing, don’t go skiing. However, it may also mean avoiding travel to certain areas or being careful of timing. Given the current state of political unrest in the world, this can be especially important for HNW seniors.
  2. Risk Reduction: Reducing risk relative to wealth preservation can include, for example, installing on alarm system or fencing and gating property. It may involve installing a safe for jewelry or taking similar actions.
  3. Risk Retention: Risk retention simply means accepting a given risk and deciding not to do anything about it. It includes risks such as having high deductibles on insurance policies (i.e., retaining risk in the amount of the deductible).
  4. Risk Transfer: Using insurance is transferring risk. In order to protect the value of your property, you purchase insurance (e.g., homeowners or auto). In order to protect yourself financially against potential lawsuits, you purchase liability insurance (including an umbrella policy). Seniors who want to preserve wealth need to make sure they have adequate insurance coverage. This is especially true of those in the high net worth category.

The information above is reprinted from Working with Seniors: Health, Financial and Social Issues with permission from Society of Certified Senior Advisors® . Copyright © 2009. All rights reserved. www.csa.us