Walking on salmonella-laced eggshells, wondering whether we’ve finally seen the worst of the BP oil spill, it’s clear that the world remains as risky as ever. By the time I post this blog, there will probably be yet another new headline with another unlikely risk that few of us saw coming.

As a  financial planner, I think about unlikely risks all the time. While we can only do so much to avoid a bad egg before it’s been recalled, there are reasonable steps you can take to mitigate some of the bigger “unlikely” risks. Here are some examples.

Premature Death. For most people, the chance they will die tomorrow is remote. But the consequences are too severe to ignore. Just in case, almost everyone needs a will. In addition, people who have substantial estates need expert planning to minimize possible estate taxes.

Contrary to what a life insurance salesman might tell you, not everyone needs life insurance. Nevertheless, in our comprehensive financial planning process we always examine whether the risk of death should be transferred to an insurance company by buying a life insurance policy. Life insurance most often makes sense for the younger client whose estate is not yet large enough to provide for the family if the breadwinner dies. But as the breadwinner nears retirement age, the need for life insurance as a risk management tool wanes. For this reason we usually recommend “term” life insurance policies, which expire after a certain term, and we avoid the much more expensive “whole life” policies.

Living Too Long. The flip side of premature death is outliving your money. Average life expectancy is around age 78. But if you’re a non-smoker, add six to nine years to the average. Moreover, constant medical advances are gradually extending life expectancy. Referring to the MoneyGuide Pro Annuity 2000 Mortality Table, the bottom line is that, for the average non-smoking couple, there is a 50% chance at least one spouse will live to age 91, and a 10% chance that at least one spouse will live to 101.

Health and Disability. Health insurance is a must, and disability insurance (though often expensive) should at least be considered. Depending on the situation, long-term care insurance may be appropriate too.

Cars and Trucks and Things That Go. When it comes to liability claims, every wealthy person is a potential target. Everyone who has a high net worth needs an umbrella liability insurance policy to protect their assets against potential lawsuits resulting from events like car accidents. Yes, it’s a remote possibility that you’ll get into a car accident, that it will be your fault, that someone will be seriously injured and that they will successfully sue you for millions of dollars. But it can happen, and it is a relatively cheap risk to insure against. Typically we recommend at least a million dollars in umbrella coverage, and often more.

We take our risk management analysis beyond insurance to “asset protection” strategies, legal strategies that can protect assets from lawsuits after the insurance runs out. If you’re not sure you have adequate personal risk protection, call us. We don’t sell products or prepare legal documents ourselves, but we help you provide an objective risk review, strategy recommendations and appropriate referrals.

Market Risk. Finally, some risks are far from remote, but when they occur many people are shocked anyway. Take the U.S. stock market. Since 1926, we’ve seen negative annual returns about a quarter of the time, usually in the double digits. If the stock markets weren’t subject to periodic ”head for the hills” panic runs, more people would invest, and remain invested. Supply and demand then would drive prices up and returns down. 

But, while periodic bad markets are expected, they aren’t predictable; nobody knows when they’ll begin or end. Our goal is to help investors (1) remain committed, ready to capture any upswings that may occur and (2) dampen some of the stock risk by blending stocks with bonds in well-diversified portfolios that meet the client's investment objective, bearing all of their financial goals in mind.

If you’re not sure whether your personal risks have been adequately addressed, give us a call.

It’s no news that our military personnel put themselves in harm’s way every day they serve our country. Sometimes they pay the highest price in our defense. Their families pay the price too.

Now the New York Attorney General’s office alleges that insurance companies MetLife and Prudential prey on our fallen heroes’ families by holding onto the death benefits from their life insurance policies.

Most of us assume that, if we die, our life insurance policy will pay off in the form of a check delivered to our family. Instead, these insurers put the service member’s death proceeds into an interest-bearing corporate account, delivering a book of drafts (similar to checks) to the policy beneficiary. The insurer argues this arrangement is a win-win: The account pays a modest interest rate, and the beneficiary can use the drafts like checks. The insurer profits from a portion of the interest if the account stays put.

Some military families feel they have been taken advantage of at the very time when they are most vulnerable.

My bet is that the insurers are mystified as to why military families (and the New York Attorney General) are so upset. After all, the family can write a check on the balance. And it does earn interest. Where’s the beef?

The beefs are two. First, unlike most bank accounts, the insurer’s corporate accounts are not FDIC-insured. That’s a big deal if the insurer goes out of business. Second, the military families miss a tax opportunity by leaving the death proceeds in the insurance company account: For up to one year after receipt, they are entitled to put all or part of the proceeds into a Roth IRA or Coverdell education account, where the proceeds can grow tax-free to fund retirement or education.

MetLife and Prudential informed the beneficiaries that the money could be withdrawn from their accounts, but reports say that the insurers stayed mum about the right to transfer the balance to a tax-sheltered account. The insurers had no legal obligation to brief the family on the Roth IRA opportunity, but surely the families of our fallen service members deserve more consideration. I can understand why the AG is upset.

If you’re a beneficiary of one of these insurer’s accounts, what should you do? According to CPA Sheri Allshouse in Houston, if you want to contribute part or all of the proceeds to a Roth IRA but the one-year deadline has passed, it’s probably simply too late. Nevertheless, she says, there have been cases in which the IRS has shown some leniency in late transfers between Traditional IRAs and Roth IRAs. Talk with your CPA before you conclude that there’s no hope.

In addition, Houston CPA Laura Conway warns that the Roth IRA rollover is available only for life insurance proceeds from Servicemembers' Group Life Insurance (SGLI) and military death gratuity policies, both programs sponsored by the Veterans Administration. Other life insurance benefits are not eligible.

Given the tough financial times we’ve all lived through recently, you may be concerned that your account is not FDIC-insured. Two thoughts here. First, rating agency Standard & Poors assigns a relatively strong AA- rating for financial stability to both MetLife and Prudential, implying that these insurers are unlikely to go belly-up anytime soon.

But you may still prefer to have an FDIC-insured account, and if so you’ll need to transfer your balance to a bank. Be careful that you don’t go from the frying pan to the fire: With some exceptions, FDIC insurance generally covers only the first $250,000 you have at the bank. These days lots of banks aren’t nearly as financially strong as some of the major life insurance carriers, so if you transfer money to one or more banks, be sure to keep the amount at each bank under the FDIC-insured limit. You can use the FDIC’s calculator to determine exactly how much of your bank account is FDIC-insured. And remember that not all banks are members of FDIC. Click here to be sure the bank is a member.

Don’t hesitate to call on us if you have any questions or if we can help in any way.