Insurance & Risk Management Essentials

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Amber Posthauer: Hello, everyone! Thank you for joining us today. We're gonna get started here in 60 seconds to allow everyone to get connected. We'll get started shortly.

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Amber Posthauer: Welcome, everyone, to Insurance and Risk Management Essentials. Thank you all so much for joining us.

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Amber Posthauer: Please send questions to the Q&A located on your Zoom menu bar. We'll try our best to answer all of your questions today.

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Amber Posthauer: Today's presentation is being recorded. We'll be sharing the recording in the coming days. At this time, I'd like to hand over the call to our speaker. Alex, the floor is yours.

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Alex Wallerich: Thank you, Amber. Good morning for some, good afternoon for others, and happy lunch break for the rest of us.

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Alex Wallerich: My name is Alex Walerick. I am from NFP. I've been with our NFP team here about 9 years, and my primary role is as our risk strategist. So I partner with all of our financial advisors on our team.

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Alex Wallerich: and help design client, risk strategies. So we make sure that clients are, one,

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Alex Wallerich: quantifying what their risks are, and I'll get to what those risks are here in the presentation today. But two have developed a strategy for offsetting as much of, or none of, or all of the risks that they have, with either an insurance product or some sort of strategy to help.

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Alex Wallerich: So today, we're going to go through some foundational risk conversations that you should at least be having with yourself. I'll go through some different types of risks that you might have in your plan, and how to build a solid financial plan while being aware of what those risks are. So today's agenda, we're going to, like I said, go through the pieces of a stable financial plan as it comes to risk.

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Alex Wallerich: when you look at, when you look at financial planning, you really have risks in two different ways. You have the risk of losing your income, and you have the risk of an unexpected expense.

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Alex Wallerich: So we'll address the different pieces that play into those two categories. Income protection, if you pass away or become disabled, that's where you have life insurance or disability insurance.

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Alex Wallerich: And then on the expense side, you have homeowners insurance, auto insurance, health insurance, long-term care insurance. There are some other types of coverages as well that we'll address, such as umbrella coverage.

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Alex Wallerich: I'm sorry, I'm just seeing in the chat here.

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Alex Wallerich: That you aren't able to hear me.

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Alex Wallerich: Amber, do you have a fix for that?

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Alex Wallerich: Some can hear, some can't. Sorry, I'll pause for just one minute.

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Amber Posthauer: Mmm… Looks like they're hearing you.

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Alex Wallerich: Some are hearing me, okay.

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Alex Wallerich: Alright, I'll let that shake out.

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Alex Wallerich: So anyway, back on track, the expenses that we have, you know, those four big categories, but we also have some other things that we'll discuss as well. So we'll go through that agenda. I like to have these conversations a little bit more interactive, and I know we don't have, you know, the ability to participate verbally, but if you do have questions that you want to fire at us right now, please do so in the Q&A or in the chat, and we'll try to address them as we go through here.

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Alex Wallerich: So, without further ado, I'd like to start with this visual. When we talk about financial planning, we want a financial plan to be stable. And the best way that I can visualize or demonstrate that stability is with a pyramid structure. It's one of the more recognizable, you know, symbols of stability. And when you look at a financial plan, you look at it building from the bottom up, your largest piece of your

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Alex Wallerich: your stability is going to be understanding what your cash flows are. So that's on the bottom. We have cash flow to the left. And what that really means is understanding what's coming in for your income.

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Alex Wallerich: and what's going out for expenses. So, coming in, meaning, you know, whatever you make from your W-2, or whatever you make from your job, if you have passive income from investments, or you have a real estate type of income portfolio, just understanding where it's all coming from. And then expenses, understanding where it's going. So, most people

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Alex Wallerich: for sure know what's coming in, but not as many people know what's going out. So, you don't have to know it, you know, down to the penny on where things are going, but everybody wants your money. You know, the government wants your money as part of our tax plan. The, you know, Best Buy, Target, Walmart, they all want your money. They are marketing to us every single day. You get to, in a sense, control where some of that money is going, and the first

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Alex Wallerich: piece of that is understanding where it's going currently. So understanding that budget and cash flow piece of your plan is absolutely the most important.

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Alex Wallerich: On top of that, then, with that cash flow, we need to know what are the risks we have associated with that cash flow. The first risk, obviously, is the risk of our income going away.

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Alex Wallerich: If our income is lost, what happens? And if there are people that are dependent on our income, we have a spouse, we have kids, we have other goals that we have with our income.

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Alex Wallerich: what happens if that income is all of a sudden gone? So, protecting that inflow. If you have a premature death, which is what life insurance is for, or at least being aware of what happens if your income permanently is lost.

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Alex Wallerich: or if you have some sort of disability that impacts your income, either partially or fully, and it's not a death, but it's something that happens, you know, for a longer extended period of time, what is your plan to be able to offset that loss of income? So on the income side, you know, protecting what is there. On the outflow side, protecting against an unexpected big expense.

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Alex Wallerich: So, like I said before, we have those four main categories that might affect some and might affect… might not affect others, but most of the time, we have some sort of big expense that we have.

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Alex Wallerich: that'll come up, whether that's a medical expense, whether that is, you know, our car breaks down, something like that. So knowing what those risks are that are out there, and being able to use some of the tools that you have to offset what those risks are. So the big ones, like I mentioned, are homeowners coverage. Most of us probably don't have, you know, $300,000, $400,000 to rebuild our home if it burns to the ground, for example. That's what homeowners insurance will help

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Alex Wallerich: Offset. Auto insurance is the same thing for another big asset that you have, which is your vehicle. Auto insurance helps cover the risks that are associated with you driving and the vehicle itself.

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Alex Wallerich: And then in addition to that, we'll get into some of the other pieces that affect a plan, such as long-term care, where there's a risk of an additional expense that might get added to your plan later in life, or at some point throughout your working career.

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Alex Wallerich: In addition to that, then, if we move our way up, the emergency fund is the next big piece of risk planning. Risk planning isn't necessarily all about your insurances, because insurance doesn't cover everything. So, having yourself set up with an emergency fund that is fairly liquid, that you can dip into if something does

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Alex Wallerich: occur that an insurance isn't going to help cover for you. So, we typically recommend anywhere from 3 to 6 months of your income, or of your expenses, rather, being what you save up in an emergency fund.

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Alex Wallerich: for things such as, you know, like I mentioned, your furnace goes out and you need $10,000 to replace it, or you need, you need to repair something on your vehicle that insurance isn't going to cover. That's where you want to have that liquid cash available to go to, so that you don't have to dip to things like a credit card, which are very hard to dig out of once you, you know, accumulate a larger balance there.

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Alex Wallerich: You're in control a little bit more proactively of those unexpected expenses that can come up.

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Alex Wallerich: And then from there are the other financial planning fundamentals. So we have managing debt, personal savings, retirement savings, and starting to look a little bit more long-term into more speculative investing or market-based portfolios.

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Alex Wallerich: But understanding, you know, I spend a lot of time on this page, but understanding what the cash flow is for your plan, what's coming in, what's going out, and then protecting that cash flow is really where we're going to focus most of the attention today.

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Alex Wallerich: The first piece, like I mentioned briefly, is protecting your income. The two main risks you have with income loss are going to be if you pass away.

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Alex Wallerich: And that would be a permanent loss of income, obviously, so if somebody is going to be dependent on you financially, whether it's a spouse or a child, or your family, if you care for elders, whatever it may be, your income is important. Your income is important for their livelihood. So what is your plan to replace that income to those who depend on it? And like I said, life insurance is that permanent loss of income.

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Alex Wallerich: Disability is about the same, but it's not permanent. It's a temporary loss of income. Is that going to be for 90 days, for a year, for 2 years? And sometimes it could be permanent, where you have a permanent long-term disability, but

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Alex Wallerich: typically it's a partial loss or a temporary full loss of income. So what is your plan to be able to offset what those, what that impact is going to be for your financial plan?

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Alex Wallerich: The first piece of that, I'll go a little bit deeper on what life insurance is. So, life insurance

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Alex Wallerich: in general is, like I said, a good way to provide financial support to people that are dependent on your income if you were to pass away and that's lost forever. It's a very strong part of your plan because it provides that protection against our most valuable asset, which is your ability to earn an income.

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Alex Wallerich: So it's a very solid piece of a strong financial plan.

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Alex Wallerich: It's a legal contract. A life insurance policy is a legal contract between you and an insurance carrier, so once it's in force, it's bound by, you know, the legalities of what the contracts say. So, it's nothing that, if you're purchasing on an individual market, that can be altered, you know, after the fact. So it is a legal document, a legal contract.

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Alex Wallerich: There's 4 pieces to that contract. You as the owner, in the top left corner here, so you have the policy. Typically, the owner is also the insured, so that's the person the policy is on. You pay a premium to the insurance company, whether that's through your payroll deduction, or you pay it directly to the insurance company, or through an agency, but that insurance company then provides you with a death benefit. The death benefit is

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Alex Wallerich: Typically tax-free, so it's designed to create, you know, a lump sum liquidity back to you as the insured, back to your family, which is where that would pay then to your beneficiaries. So typically that's set up as your spouse, or your children, or some sort of trust structure for your estate. Those death benefits are almost always tax-free, and designed to create that replacement of

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Alex Wallerich: What is lost if you pass away.

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Alex Wallerich: So, those are the four main pieces of what makes up that insurance contract.

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Alex Wallerich: There's 3 main types of life insurance. I know there's lots of things that get thrown at you all the time in the news, or if you read things online, between term coverage, permanent coverage, you know, the colonial pens of the world that are out there during daytime TV. I know there's lots of different things that are out there, and I like to simplify it by looking at 3 main categories of how you can obtain life insurance for your plan.

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Alex Wallerich: Term coverage is one product type. It's designed to provide temporary protection, so it's designed for the if, and this is what I usually put in place with clients that have a working career, remaining working years. So if I'm going to be working for 20 more years.

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Alex Wallerich: Typically, there's a 20-year, you know, window of

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Alex Wallerich: time when I'm going to need that coverage. But after that, when I retire, or if my assets and my savings have come up to the point where I don't need the income replacement protection, then that term is designed to be canceled. So it's really just designed to be a temporary type of coverage for a specific period of time.

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Alex Wallerich: With individual coverage, you're underwritten.

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Alex Wallerich: individually, so you would have your premium would be based on your health and on your age. So, the younger you are, the healthier you are, the lower the rates are going to be, but it's designed to be the least expensive type of coverage to offset that risk.

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Alex Wallerich: There's two types, level and increasing. Level is what most people will purchase. If it's for a 10, 15, 20, or 30-year time frame, that's what the level premium is guaranteed to never change for that time frame, so you're truly locking in, you know, coverage at the specific rate for that time.

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Alex Wallerich: Or there's temporary, like, year, two-year, 3-year types of coverages that have an increasing premium, but meant for very short-term.

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Alex Wallerich: The second type of life insurance that you can get is called permanent life insurance.

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Alex Wallerich: the… what a lot of people will refer to in this space is just called whole life. People will ask about whole life a lot. Whole life is a type of permanent coverage, but it's not the only type of permanent coverage that's out there. Permanent coverage is really designed for end-of-life type of planning. Legacy planning, charitable planning, estate planning. You can use permanent coverage as an asset class, too. There's some more sophisticated

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Alex Wallerich: strategies there, but most of the time, permanent coverage is put in force for, for end of life. So, truly providing that, that when. You know, when I pass away, this is going to be there, not if for a certain period of time. So, permanent coverage is designed to be enforced truly for the rest of your life.

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Alex Wallerich: Premiums are typically the same over the lifetime of your policy. They're also

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Alex Wallerich: They can be flexible if you want to design them that way as well, but the policy itself is designed, like you said, to provide death benefit protection for the rest of your life, not just for our short-term period.

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Alex Wallerich: There is a cash value element to permanent coverage as well.

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Alex Wallerich: that allows you to… you're kind of building up a residual account inside of the policy, and there's some more sophisticated aspects of that, but ultimately what that gives you is the ability to either cancel out of the policy and receive, you know, a portion of your money back.

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Alex Wallerich: Or, you can use some of that cash value while you're alive for other spending needs that come up. So it creates a little bit more of an asset type of structure, rather than just a pure coverage type of structure, if you use a permanent policy. The permanent policy premiums are almost always more expensive than term policy, so that's your other trade-off there, is you're truly getting coverage for the rest of your life.

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Alex Wallerich: But the premiums are typically a little bit higher.

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Alex Wallerich: As I mentioned, there are more than one type of permanent… or there is more than one type of permanent coverage. The two main categories are whole life and universal life.

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Alex Wallerich: Whole life is the more traditional type of coverage, where premiums are guaranteed, coverage is guaranteed, premiums are typically a little bit higher, and you have a more steady type of growth rate on the cash value.

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Alex Wallerich: Universal life is the other option, where everything about it is flexible, including the death benefit, including the premium. You just kind of choose how you want to manage your policy with death benefit amounts and premiums ongoing, you know, for a certain time frame, typically for the rest of your life.

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Alex Wallerich: So, permanent coverage is where all of the sophistication lives, you know, typically when we're looking at an overall insurance portfolio, and can be very, very flexible and very creative on how we structure that for your plan.

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Alex Wallerich: The third type is coverage that you typically will get only from your employer, called group coverage. So, group coverage is offered, you know, as a group benefit, typically, where you can buy additional life insurance for yourself, or your company may or may not give you coverage as part of your benefits package. Group coverage is assessed the same rate for everybody, so you have a fixed

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Alex Wallerich: Rate, based on your age, typically is age-banded, so every 5 years or so it will increase in cost.

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Alex Wallerich: And it's the same rate for everybody, and it's usually priced per thousand. So you can scale it up or down based on how much coverage you need. But the key with it is it's typically not underwritten. So, you typically don't have to worry about your personal health if you're going to go with group coverage.

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Alex Wallerich: My rule of thumb there is group coverage is almost always more expensive if you think you are healthier than the average person your age.

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Alex Wallerich: you can probably find a less expensive coverage option on the individual market, but if you're on the other side of that spectrum, and maybe you have some health concerns, you have some health history that would impact your insurability, group coverage could be a very cost-effective way for you to obtain life insurance. So, you know, just knowing what those costs are going to be when you come through your open enrollment timeframe is a good time to review that, and then looking at, you know, the difference between personal coverage and group

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Alex Wallerich: coverage, you know, can really, one, help you save some money, but two, be, be properly insured at the same time.

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Alex Wallerich: So those are your three main types of life insurance, which, again, is replacing the loss of your income permanently, or replacing, or providing some sort of legacy benefit with the permanent coverage.

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Alex Wallerich: The next

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Alex Wallerich: type of coverage that's going to offset your risk of a loss of income is disability insurance. So, another core piece of financial planning, but oftentimes, disability coverage is offered by your employer, and disability coverage that's offered by your employer is typically sufficient for what you would use. There's short-term and long-term disability, that would be your STD-LTD option. Short-term disability is designed to be really

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Alex Wallerich: what it says, short-term. So, 7 days is typically how long you have to wait for that type of coverage to kick in, and it can provide a benefit period from anywhere of 9 weeks on the low side to maybe up to a year on the high side. So, it's designed for a true short-term type of disability. Typically, illnesses or, like, a surgery recovery or things like that that allow you to not… or that prohibit you from working, short-term disability is going to be that.

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Alex Wallerich: Type of coverage that kicks in to help offset that loss of income for you.

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Alex Wallerich: Long-term disability now is truly what it says, longer-term, so it's designed to be layered on top of

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Alex Wallerich: short-term disability. Typically, you have to wait 30-plus days. The most common, I think, is 90, where you'd have to wait 90 days for that to kick in. But that's really designed, then, to be your longer-term, permanent type of disability offset, where, you know, maybe I get in an accident, and I'm wheelchair-bound, and I can't get myself, you know, around, and it's affecting my ability to earn income.

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Alex Wallerich: That type of thing, that type of coverage, long-term disability would help offset that, that type of risk, that type of occurrence. So, designed to be anywhere from a 2-year benefit period all the way up to age 67, or even longer if you are still working past that age of 67. But short-term, exactly what it says, anywhere from 1 week to a year. Long-term, there's some overlap, anywhere from 30 days

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Alex Wallerich: Of waiting all the way up to, you know, being able to have a benefit until you truly retire and replace that… those… those working years.

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Alex Wallerich: Statistically, you're more likely to become disabled than you are to pass away, you know, unexpectedly, and the stats are saying that 1 in 4 adults in the U.S. are, you know, going to experience some sort of disability, whether that's a short-term or a long-term. So, you have, you know, have those stats, and that's a real part of life.

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Alex Wallerich: How much is enough is a question we get a lot. You know, you don't want to be underinsured, but you certainly don't want to be overinsured when it comes to, you know, both life and disability coverage.

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Alex Wallerich: first of all, just helping yourself quantify what those risks are is where I would start for most people. So, start with the second one down there, the income replacement. How much income do you have coming in?

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Alex Wallerich: How many years do I have left of that income?

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Alex Wallerich: And what do I want to leave behind? Do I want to fully replace my income? Do I want to partially replace my income? A lot of that comes down to your expenses, too. You know, if you have a mortgage, or you have

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Alex Wallerich: You know, a large car payment, or a loan against a vehicle, or you have, you know, just a large expense on your cash flows.

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Alex Wallerich: what… where is the funding for that going to come from? So… so having that conversation with yourself or with your family or your financial advisor will really, you know, move that needle a little bit more to identify what actually is that risk and coming up with what the comfortable number is for you, for how much of it you would want to offset.

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Alex Wallerich: In addition to that, you know, the income replacement being the most important, there are other cash needs that happen if you were to pass away, so this is specifically looking at life insurance.

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Alex Wallerich: the cost to, you know, properly bury you, or properly cremate, or whatever it is that your end-of-life wishes are, you know, there are expenses to that, so do you want to leave those with people, you know, that love you, or do you want to have some of that stuff taken care of with the death benefit from an insurance policy? That's a core piece of it as well. You don't want to leave medical bills behind. The people that love you, if they lose you, they're going to have a hard time with that.

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Alex Wallerich: Obviously, so they might want to take some time off.

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Alex Wallerich: you might want to build it into your plan to give them some time to, you know, to properly grieve and properly recover. So, other, you know, other things like that that would come up at death that aren't necessarily linked to your income, but provide some nice, you know, some nice stability and some nice peace of mind at death.

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Alex Wallerich: In addition to that, you have debt repayment that oftentimes gets brought up if, you know, like I said with the mortgage payments, that's oftentimes mostly the biggest expense that most people have is that mortgage payment. So, what is your plan to pay that if you become disabled? How do you make sure those bills are paid on time? Vehicles, same way. Auto loans, insurances.

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Alex Wallerich: Things like that that come with your, with the things that you own.

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Alex Wallerich: And then permanently, too, if you do pass away, a lot of people like to bake in some additional death benefit from their life insurance to be able to just create a debt-free environment for the people that are surviving them. So, debt repayment is a big conversation piece for how much is enough.

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Alex Wallerich: And then once you kind of have those foundational pieces taken care of, what do you want, or what would you have done with your income? What you have done with the assets that you're building up, if you have, you know, 20 years or so of income coming in?

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Alex Wallerich: Raising your family, saving for education, planning for retirement, you know, do you want things to continue basically the way that they were planned to be if something were to happen? So, thinking about not just what needs to happen immediately, but what did we want to have happen, and what can we do to make sure that it doesn't change.

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Alex Wallerich: So, a little bit… it's hard to say this is perfect for everybody, because that's not true. You want to have an in-depth conversation about what amount is appropriate. And I always say, too, in client meetings, I'll say risk management is truly about managing the risk. You know, that's just the inverse of the actual phrase. So, most people are… everybody manages risks differently. So, if you want to truly offset all the risk that you have.

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Alex Wallerich: You can go with an insurance-rich plan, or you aren't worried about any of these risks.

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Alex Wallerich: And you could go with an insurance-free plan, or somewhere in the middle. But there is no perfect solution for everybody, it just creates, you know, you need to create an individual conversation to come up with what's truly right for you.

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Alex Wallerich: In addition to the income, like I said back at the beginning, there are additional expenses that can come up that insurance can help with as well. So, being aware of what liabilities there are out there that are unexpected, that could incur a large expense for your plan. Home, auto, health insurance, long-term care insurance, these are all big pieces of

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Alex Wallerich: unexpected expenses that could show up in your financial planning. So we'll address the first, few here.

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Alex Wallerich: homeowners insurance, if you own a home, it's required, and you have a mortgage against that home, it's required by the lender to have homeowners insurance. And basically what it does is it…

00:24:22.270 - 00:24:47.219
Alex Wallerich: will replace the value of your home and the items that are in it with, you know, with an insurance benefit. So, you may or may not know that if you have a mortgage payment, typically your homeowner's insurance is already escrowed and involved with that mortgage payment, but if you aren't aware of that, you know, maybe look at your statement and you can actually see, you know, what portion is going towards your homeowner's insurance. You have to have that if you have a mortgage on your property. If you don't have a mortgage on your property and you own your house outright.

00:24:47.220 - 00:25:10.839
Alex Wallerich: it's still typically a good idea to have homeowner's insurance because, like I said before, most of us don't have a big lump sum of money sitting on the sidelines to, you know, rebuild or repair our home if something unexpected were to happen to it. So, it is typically the largest asset that most of our clients will own, and the possessions inside of it are, you know, making up a large portion of what they own, so we want to make sure that piece is protected.

00:25:11.840 - 00:25:31.110
Alex Wallerich: In addition to that, auto insurance is the next most popular piece, also required by the state to, you know, you're required to have auto insurance. Not everybody does, that's why that second bullet point there is a little bit of an additional cost that's incorporated with auto insurance, but the insurance that you have that's legally required by the state is

00:25:31.110 - 00:25:40.039
Alex Wallerich: five pieces. It has to have liability coverage, it has to cover under… uninsured and underinsured motorists, it has to have comprehensive collision, medical payments.

00:25:40.040 - 00:25:48.130
Alex Wallerich: As part of it, and then personal injury. So all of those are different ways that you could be exposed while you are driving your vehicle.

00:25:48.130 - 00:25:55.120
Alex Wallerich: So, we want to make sure that you're at least addressing those 5 areas, and with the proper amounts when you look at auto insurance.

00:25:55.670 - 00:26:04.379
Alex Wallerich: Now, umbrella coverage is something you may or may not need, depending on your financial situation, but umbrella coverage is what a lot of people choose to incorporate as kind of a catch-all.

00:26:04.380 - 00:26:18.319
Alex Wallerich: So umbrella coverage, the visual of an umbrella is kind of shielding you from, you know, from everything that's being dumped on you, and that's exactly what it's designed to do in a nutshell. So you have umbrella coverage to cover everything that auto, home.

00:26:18.320 - 00:26:26.119
Alex Wallerich: doesn't have. It provides that extra liability behind… beyond those two pieces, but it also provides coverage against

00:26:26.120 - 00:26:49.679
Alex Wallerich: the risk of you being sued, you know, for others, if they're suing you for damages, or for slander or, you know, other things that you may have inflicted on somebody intentionally or unintentionally. If somebody is suing you, the umbrella coverage can be a nice way to manage what those big expenses could potentially be with an insurance policy. It just helps cover somebody from coming after you personally, in addition to

00:26:49.680 - 00:26:54.889
Alex Wallerich: and home coverage for your other assets. So those are kind of three big pieces of a core

00:26:54.890 - 00:26:57.350
Alex Wallerich: Risk strategy for protecting what you own.

00:26:58.460 - 00:27:13.680
Alex Wallerich: Health insurance is the other big, big piece. Everybody should have health insurance in some capacity. Medical bills are the leading cause of bankruptcy in America, so having proper health insurance is a very, very important part of your financial plan, because

00:27:13.890 - 00:27:17.189
Alex Wallerich: In general, it helps protect against

00:27:17.320 - 00:27:29.920
Alex Wallerich: a large, unexpected medical expense, or if you do have expected medical expenses, it helps control those expenses so that it's easier to budget. There's two main types of health insurance. You have a high deductible plan.

00:27:29.920 - 00:27:45.919
Alex Wallerich: which is coming with a lower monthly premium, typically, you have a higher deductible. So what the deductible means is that's my out-of-pocket portion that I have to pay up front before the insurance kicks in. So if I have, let's say, a $5,000 deductible on my health insurance plan.

00:27:45.920 - 00:28:02.950
Alex Wallerich: I would cover the first $5,000 of medical expenses out of my own pocket, and then after that, the insurance company will cover either all or a portion of my health insurance, or of my healthcare needs, on top of that. So truly protecting against that long-term, you know, catastrophic type of event.

00:28:02.970 - 00:28:27.629
Alex Wallerich: In addition to that, you can use an HSA, which is a health savings account, in tandem with the high-deductible plan. I am a big fan of HSAs. I tell clients that all the time. It's a tax-free way to save for those future medical expenses. We don't know when they're going to come, but they will come. You will have medical expenses throughout your life, so HSA is a very tax-efficient way

00:28:27.630 - 00:28:30.510
Alex Wallerich: To help plan for those medical expenses.

00:28:30.510 - 00:28:31.570
Alex Wallerich: So…

00:28:31.620 - 00:28:45.849
Alex Wallerich: definitely take advantage of the HSA if you are on a high-deductible plan. That's a very key piece of being able to use your health insurance appropriately. The other type of planning, or the other type of health plan is a copay-style plan.

00:28:45.850 - 00:28:59.049
Alex Wallerich: Copay-style plans typically have a higher monthly premium, a lower deductible, but you pay a portion of it along the way, and the insurance carrier pays a portion of it along the way. We usually recommend those types of plans for

00:28:59.100 - 00:29:17.099
Alex Wallerich: for people that have expected healthcare expenses. If you're managing a, you know, you're managing medication, or you have regular treatment for something, you know, those bills can add up very quickly, and you know they're coming. So a copay style plan, even though it's a higher monthly premium.

00:29:17.100 - 00:29:22.530
Alex Wallerich: Can oftentimes be a more cost-effective way to offset the risk of those bigger expenses.

00:29:22.530 - 00:29:45.850
Alex Wallerich: So like I said, in summary at the bottom there, high-deductible plans are generally better for people that see themselves as, you know, being healthier and don't go to the doctor very often, but want to have some protection, should have some protection against that catastrophic worst-case, you know, scenario type of health event, whereas copay plans are better for people that have things that are more chronic, regular prescriptions, see their doctor frequently.

00:29:46.840 - 00:29:59.699
Alex Wallerich: The copay plans are oftentimes, you know, better when you have kids or more people involved with your plan that increase the risk of using that healthcare, or increase the frequency of using that health insurance more regularly.

00:30:00.050 - 00:30:03.780
Alex Wallerich: So those are your two big pieces of, of, health insurance.

00:30:06.560 - 00:30:23.160
Alex Wallerich: Long-term care insurance is, I would say, by far the most asked-about topic that we have with our financial planning clients. About 1 in 2 people, so 50%, the stats are actually a little bit higher than that, will need some sort of long-term care help in their lifetime.

00:30:23.160 - 00:30:34.740
Alex Wallerich: 20% of the people that need that help are going to need it for longer than 5 years. So, we have lots of people that say, or don't think they're ever going to need it, or are never going to…

00:30:34.740 - 00:30:46.269
Alex Wallerich: have some sort of long-term care event, but the reality is that you probably will. The stats say that you're more likely to than not. So what long-term care is, is

00:30:46.470 - 00:31:08.639
Alex Wallerich: I can't… if I can't do two of the 6 daily activities of living, which are bullet-pointed down there at the bottom, there's 7 of them. The cognitive impairment is that 7th separate one, but the first 6 are the daily activities of living that are determined, or that are deemed by the IRS. So, if I can't do two of those six, I would technically be qualifying for

00:31:08.640 - 00:31:10.360
Alex Wallerich: Needing long-term care.

00:31:10.360 - 00:31:11.640
Alex Wallerich: So this is…

00:31:11.640 - 00:31:22.179
Alex Wallerich: Not medical care, this is just assistance that I might need to pay somebody or hire somebody to help me with these basic, you know, basic pieces of life.

00:31:22.220 - 00:31:43.830
Alex Wallerich: So that is going to oftentimes come with a cost. You know, if you're paying a skilled nurse, or you're paying a facility, if you're in, like, a memory care type situation, or you're fully, you know, long-term care, or fully nursing home coverage, where you need somebody, you know, 24 hours a day to help you get through basic life tasks, those things all come with additional expenses.

00:31:45.000 - 00:31:55.669
Alex Wallerich: the one that often gets overlooked is, well, let's say I have a family member that might want to come take care of me, I stay in my home. Yes, that's great, that doesn't cost anything because you aren't paying them

00:31:55.800 - 00:32:04.890
Alex Wallerich: Likely, but you could, to provide that care. But they're coming probably away from something else that they would be using to generate income.

00:32:04.900 - 00:32:25.569
Alex Wallerich: And giving up some income in order to provide that care to you. So, long-term care insurance can not just be for the facilities, or for the skilled people providing the care, but also for a family member, if you want to pay a family member to be kind of your first line of defense against needing that type of care and assistance. So, long-term care

00:32:25.570 - 00:32:36.890
Alex Wallerich: is a very key piece of retirement planning for most people, but it can happen at any age. You can have a long-term care situation, you know, to recover from an accident, or whatever it may be. You just…

00:32:36.890 - 00:32:42.720
Alex Wallerich: In order to qualify, you would not be able to perform two of those 6 daily activities of living, which are down here at the bottom.

00:32:46.320 - 00:33:00.409
Alex Wallerich: So coming back to the pyramid that I referenced before, understanding that inflow and the outflow being the most important, the bottom part of that pyramid, the protection piece of that income and outflow.

00:33:00.410 - 00:33:11.969
Alex Wallerich: Being the second most important, that's where your insurances, like we just discussed, are going to come into play. So offsetting the risk of losing your income, or offsetting the risk of an unexpected large expense.

00:33:12.170 - 00:33:21.589
Alex Wallerich: There are, however, things that insurance is not going to cover, so you need to be appropriately planned for those types of things as well. I mentioned before.

00:33:21.710 - 00:33:34.070
Alex Wallerich: you know, the example of if my furnace goes out and it's the dead of winter, what am I going to do to be able to offset that risk? They do sell, you know, care plans or maintenance plans and things like that that you could use, that is an insurance.

00:33:34.070 - 00:33:53.509
Alex Wallerich: But it's probably a better use of your funds to be proactive and try to… try to build yourself up some sort of savings, or… and we would determine… we would call it an emergency fund. So, things that… things that come up that insurance doesn't cover, that are unexpected, that require, you know, that require some… some money to be able to get through.

00:33:53.510 - 00:33:59.480
Alex Wallerich: So the emergency fund is that third core key piece of a risk strategy for your financial plan.

00:33:59.640 - 00:34:06.650
Alex Wallerich: And what an emergency fund is, like I mentioned, is money that you set aside for unexpected expenses.

00:34:06.720 - 00:34:21.139
Alex Wallerich: The most important piece of an emergency fund is it keeps you from having to go borrow money. When any time we borrow money, we're a debt-driven society, so typically we're trying to borrow to buy things and then pay it back. If you can view your emergency fund

00:34:21.139 - 00:34:31.549
Alex Wallerich: as not a borrowing-type strategy, but more as a proactive savings strategy, puts a lot less stress on the having to pay it back piece of it, and keeps you on track for your goals.

00:34:31.550 - 00:34:45.370
Alex Wallerich: So, and it's also expensive to borrow money. You have an interest rate associated with borrowing money, so you want to be able to make good use of your funds, and setting yourself up with an emergency fund proactively is a really good way to keep from having to borrow money.

00:34:45.420 - 00:35:03.839
Alex Wallerich: Where to keep it? We recommend most clients keep it just in the bank, or keep it in a very low-risk type of investment account. A high-yield savings account is a perfect example, where you're going to still get a little bit of interest credit out of it, but it's liquid. In case you need it for anything, it can be accessed, you know, when and if that time comes.

00:35:03.930 - 00:35:16.080
Alex Wallerich: We usually recommend clients to have anywhere from 3 to 6 months of their expenses saved up in their emergency fund. So if I, if I have, you know, $3,000 is what my expenses are each month.

00:35:16.080 - 00:35:37.049
Alex Wallerich: 6 months of that would be about $18,000, so I'd tell the client to have anywhere between $15,000 and $20,000 saved up in a high-yield savings account, or whatever it may be, for those unexpected expenses, and then kind of view that as your new zero. So view that as your set-aside money for that emergency. This is oftentimes called a rainy day fund, too, if you've ever heard that vernacular.

00:35:37.050 - 00:35:43.949
Alex Wallerich: You know, those two things are one and the same. But at the end of the day, it's money that you have set aside that's designed to cover

00:35:43.960 - 00:35:51.529
Alex Wallerich: Those unexpected expenses that come up are sure to come up that insurance, you know, may not all the way or not cover at all.

00:35:52.020 - 00:35:55.580
Alex Wallerich: So emergency fund is that next core piece of financial planning.

00:35:58.260 - 00:36:17.140
Alex Wallerich: important things to remember, with all of your insurances, especially with your life insurances, you will have beneficiaries associated with them, so who gets this benefit? It's important to review that because the, you know, like I said, the life insurance policy is a contract, so the beneficiary of that contract is

00:36:17.140 - 00:36:26.520
Alex Wallerich: legally bound. You can change it at any time, but if you pass away and it's incorrect, it becomes very difficult to unwind it. So making sure that you are reviewing your beneficiaries.

00:36:26.520 - 00:36:32.229
Alex Wallerich: On a regular basis, as your, you know, life events happen, or as your, your, different stages of life

00:36:32.230 - 00:36:57.120
Alex Wallerich: things can change. You have, you know, the ability to change those beneficiaries as you see fit. Other things that are going to have beneficiaries are things like your home, your retirement accounts, even your investment accounts, or your bank accounts. All of those things can have beneficiaries where, you know, you can direct where those funds are going to go if something were to happen to you. So a very solid idea to be able to review those beneficiaries on a regular basis.

00:36:57.720 - 00:37:03.100
Alex Wallerich: Create a will. If you don't have a will already, a will is a very,

00:37:03.130 - 00:37:26.099
Alex Wallerich: very easy thing to do. In most states, it can be just as simple as, I want everything divided this way, or I want to give it all over here, but a will is just essentially a set of instructions for what happens to your stuff if something were to happen to you. If you pass away without a will, then the courts get to decide, and the courts come with, you know, attorneys, and, you know, time, and all of that, so the

00:37:26.100 - 00:37:31.679
Alex Wallerich: You don't want to go through that process if you don't have to, and a will is a simple way to sidestep that.

00:37:31.880 - 00:37:56.799
Alex Wallerich: More sophisticated estate planning is appropriate for some as well. Trust-based planning or legacy planning, what do I want to have done with my stuff? But if it's not necessarily just a dispersion or a division at my death, what happens if I want to set up, you know, some sort of trust structure that might benefit a charity, or might benefit my grandkids? Or estate planning can be appropriate for those

00:37:56.800 - 00:38:05.760
Alex Wallerich: people that have, you know, larger estates, and they might be subject to an estate tax liability. So, just being aware of your situation, and being aware of

00:38:05.760 - 00:38:19.729
Alex Wallerich: of what your risks are in regards to estate planning, what your liabilities potentially could be, is really all I'm trying to get at with that, and making sure that the structure of what you have set up is truly with, you know, what you want to have happen.

00:38:23.890 - 00:38:30.089
Alex Wallerich: Are there any questions? I've been trying to monitor the chat a little bit here. I did see one come in about HSAs.

00:38:30.310 - 00:38:43.770
Alex Wallerich: I will address this here, too. So, a HSA is a very important piece, at least in my personal planning, but I always recommend people save into an HSA. If you have… my rule of thumb there is if you have

00:38:43.840 - 00:39:00.799
Alex Wallerich: a high deductible plan, and let's say your high deductible is $5,000, and I want to, you know, continue to be on that high deductible plan, I would recommend at least saving $5,000 into your HSA. And the reason for that is, if I'm going to then be on my high deductible plan next year.

00:39:01.020 - 00:39:16.639
Alex Wallerich: I would want to make sure that my HSA can at least fund my deductible, so I'm not paying anything additional out of pocket. So if you don't have regular medical expenses that are, you know, dwindling down that HSA balance, and I'm just going to continue to, continue to defer it until that medical expense comes up.

00:39:16.780 - 00:39:36.959
Alex Wallerich: then the HSA is kind of pre-funding your future deductibles, so you're developing a self-sustaining health plan. So, the maximum you can put it into an HSA is, like, $8,500, something like that, to have to look, and they update it every single year, but the HSA is a very tax-efficient place, because you put money into it, and it's tax-deductible.

00:39:36.960 - 00:39:43.270
Alex Wallerich: You can invest a portion of your HSA, typically, with your HSA provider.

00:39:43.270 - 00:40:01.190
Alex Wallerich: Any growth that you get on that investment is going to be tax-deferred, and then if you use it for medical expenses at any time, it will come out tax-free. So it's the only place that you can put money away for known expenses that will come up at some point without having to pay taxes on the dollar. So an HSA is a very, very…

00:40:01.290 - 00:40:17.940
Alex Wallerich: efficient place to save money for additional medical expenses that are bound to happen down the road. One of the things with HSAs that people usually question is, is it only for medical? And the answer is it's very tax-efficient for medical, it's tax-free the whole way around.

00:40:17.940 - 00:40:23.980
Alex Wallerich: But if I never use it, and I accrue this big balance in my HSA, and I truly never use it, or maybe don't use it all.

00:40:23.980 - 00:40:47.379
Alex Wallerich: At age 65, the funds become unrestricted, and what that means is I can take the money out of my HSA and use it to bonus my retirement income, so use it to supplement my retirement income, and all I do is I pay income taxes on it at that point, like I would from a 401K or an IRA. So it becomes bonus retirement income at the end of the day as well, while still maintaining its tax-free distribution, you know.

00:40:47.400 - 00:40:51.160
Alex Wallerich: aspect, so it's a really efficient asset to use for your planning.

00:40:51.910 - 00:40:57.150
Alex Wallerich: And I think that might have addressed the second question, too, is that, how about if I'm saving it for my retirement years?

00:40:57.150 - 00:41:14.979
Alex Wallerich: If you are absolutely saving your HSA for your retirement years, that is a very good thing, because, like I said, it can become supplemental retirement income, or, for most people, into your retirement years is when you're gonna have more of those medical expenses. So you can still use it post-retirement for your medical expenses that come up.

00:41:14.980 - 00:41:20.710
Alex Wallerich: covering deductibles, covering co-pays, prescriptions, things like that, even once you're on Medicare.

00:41:27.210 - 00:41:36.669
Alex Wallerich: Are there any other questions, either in the chat or in the, the Q&A? Feel free to fire them away, and we can address them right now.

00:41:45.820 - 00:41:57.259
Alex Wallerich: If not, as Amber was saying, this is recorded, so if you have, if you have questions after you've digested this a little bit, if you have questions that come up… oh, shoot, I wish I would have asked that,

00:41:57.260 - 00:42:14.910
Alex Wallerich: you absolutely can follow up and ask them. We are always here to help and ask questions in whatever capacity you want. If it's just a generic email, or if you want to set up some time to dive a little bit deeper in a one-on-one setting, we can absolutely help however you want with those questions.

00:42:16.290 - 00:42:25.320
Alex Wallerich: Yes, absolutely, you can set up one-on-one meetings to discuss specific needs. That's what we're here for. We'll have Amanda and Sam coordinate those follow-ups with you.

00:42:27.010 - 00:42:46.949
Alex Wallerich: Recommended resources for a basic will in Michigan. I would… I would consult your local, if you have an attorney or somebody that you, or that has been recommended, or somebody does recommend in your local area that other people in your world have worked with, that's who I would maybe consult with. A basic will.

00:42:46.950 - 00:42:59.539
Alex Wallerich: can oftentimes be obtained online as well. There are online resources like LegalZoom, you know, that comes to mind that have kind of your fill-in-the-blank type of basic will. You could access some of those things.

00:42:59.540 - 00:43:21.389
Alex Wallerich: Sometimes, too, if you're aware of what your benefits are at your company, your benefits can sometimes provide some legal guidance, too. There are benefits plans that incorporate basic estate planning as part of your benefits, so maybe look at your benefits guide or ask your HR person if you have access to those types of services through your benefits package.

00:43:24.960 - 00:43:26.029
Alex Wallerich: You're welcome.

00:43:33.520 - 00:43:36.159
Alex Wallerich: Great. Couple things still coming in here, but…

00:43:36.220 - 00:43:43.519
Alex Wallerich: Thank you all for joining us today. This has been a great, you know, a great session. I…

00:43:43.540 - 00:44:03.029
Alex Wallerich: Hope I didn't dump too much on you guys. The risk world is near and dear to me. This is where I live every day, so if anything was more complex than what you're able to understand today, you know, please revisit the presentation, but also please do not hesitate to reach out. We can absolutely, we can absolutely help answer any of those questions that come up after this.

00:44:08.270 - 00:44:19.110
Amber Posthauer: Alright, well, thank you, Alex, for sharing your valuable time and expertise with us today. To reiterate, today's presentation was recorded, and we'll be sharing the recording in the coming days.

00:44:19.260 - 00:44:30.539
Amber Posthauer: At the end of this call, our survey will populate in a new window. Please take a brief moment to complete the survey, as it lets us know what topics are important to our listeners, and helps make our education program as current and relevant as possible.

00:44:30.780 - 00:44:35.920
Amber Posthauer: That concludes our webinar for today. Thank you, everyone, for joining us, and have a great day.