Your client’s $3 million portfolio doesn’t tell you their insurance needs

In some cases, a large portfolio, such as one worth $3 million, creates a false sense of security.

“A client may have several million dollars invested, but that doesn't mean they're adequately protected from risks that could significantly impact those assets, or how they're taxed,” said Jared Colao, principal and financial advisor at Edward Jones.

While wealth and protection are related, they're not the same thing.

For this reason, it’s important for advisors to think beyond whether a client can afford a loss. The question should be whether they want to absorb that loss.

Most clients have specific goals for their assets, such as retirement income, supporting a spouse, leaving a legacy, or charitable giving. Properly designed insurance can help protect those goals from risks that could derail them.

“A $3 million portfolio shows what a client has accumulated," explained Aldo Bermudez, independent insurance broker at Goosehead Insurance. "It does not reveal what they could lose, who may depend on that wealth, or whether their insurance is structured to protect it.”

How to uncover insurance gaps

The most common insurance gaps among clients with multimillion-dollar portfolios are low liability limits, inadequate umbrella coverage, underinsured homes, unscheduled jewelry or art, and missing flood, earthquake or cyber protection.

“Wealthy clients may also own rental properties, businesses, trusts, domestic staff or recreational vehicles that create exposures their standard policies were never designed to cover,” Bermudez said.

While “how much do you have saved?” isn’t necessarily a bad question, it won’t adequately assess a client’s risk and uncover potential gaps.

Instead, focus on these types of questions: What are you trying to protect? Who relies on you financially? How would a lawsuit impact your plan? What happens if you or your spouse needs medical care for several years? Are there assets you want preserved specifically for heirs?

Ultimately, the goal is to determine what the client owns, how assets are structured, who depends on their income, and what activities could create liability. It’s also essential to consider real estate, businesses, teenage drivers, household employees, valuable collections, board service, travel and whether the client’s policies coordinate with their trusts, LLCs and umbrella coverage.

“These types of risk conversations, which occur each year during a client's annual strategy review, tell me far more about a client's insurance needs than their account balance ever will,” Colao explained.

The shift from products to planning

There are a number of life stages, asset changes, and financial events that should prompt you to assess a wealthy client’s insurance coverage.

“Selling a business, retiring, receiving an inheritance, becoming widowed, purchasing additional real estate, or experiencing a significant increase in net worth should all trigger an insurance review,” Colao said.

At the end of the day, the key is to make insurance part of the planning process, not a separate sales conversation. Insurance needs to fill the gaps that exist along a client’s desired journey rather than act as a separate "bonus."

“I don't start with policies. I start with goals, risks, and what the client wants their wealth to accomplish,” Colao explained.

Investments help clients build wealth. Insurance helps protect the plan they've worked so hard to create. When framed that way, insurance becomes a planning discussion rather than a product discussion.

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