5 Wealth Killers That Insurance Can’t Save You From

Even with the best intention, bad things can happen. I've seen a young man sue his mother. That reputation matters. It takes a lifetime to build it and it takes minutes to destroy it. You don't build right protections around it, you could be setting yourself up for financial failure.

We could do a show on that just on diversification easily. Those little things, they don't seem like much and lives can be ruined because you're not structured properly. Because when the market falls, all 12 of your mutual funds fall with it. It's not just about big corporations. Small businesses is important for them as well. Cyber and digital risk. It's endless today how far this thing can go. And the minute that you take your eye off the ball, there is a good chance that you become vulnerable.

Most people think buying insurance means that they're safe. But the truth is, the biggest threats to your financial wealth can't be insured. And people make this mistake all the time. Today, we're talking about the five biggest wealth stealers, what you should know about them, and how to protect yourself against them.

Phil, I hear people all the time tell me, "I've got life insurance. I've got homeowners insurance. I've even got an umbrella policy. I'm good." And in the back of my mind, I'm thinking, "Yeah, but are you really?" So, why aren't those things enough?

Well, first, we're taught to believe that that's all we need, right? From the time you're a young person, you hear your parents talk about homeowners insurance, get some life insurance, and we always seem to equate pure protection with insurance.

Yeah.

The fact of the matter is, not everything can be insured away. A lot of things can. We're going to talk about that. But if we go through the five wealth killers that catch most people off guard, then I think our listeners will have a much better perspective and they'll know better how to start protecting themselves. And so we're going to go through these five and it seems like a lot of people there's a few of these that people inadvertently miss.

Yeah.

They don't do it on purpose.

True.

They just don't know. Some of these as we go through them, our listeners will say, "Oh, right. Okay, I've got that one done or I know that one. That makes sense."

Yep.

But there's a few as we get to them later in the show, people are going to say, "I didn't think about that. Didn't realize that could be a wealth stealer."

Yep.

And the fact is all of these can derail the best-laid plan. So, we've got to make sure that people hear it and they've got to take action. As we said in a show several shows ago, if you don't take action, doesn't matter what we're telling you, none of it matters. But you got to take action and do this stuff.

So, five wealth killers we'll go through. And our first one is reputation, risk, and legal exposure.

Yeah.

Now, a lot of people say, "Well, I don't have to worry about that. I don't own a business. I'm not a business owner or an entrepreneur, so that stuff really doesn't matter to me." Well, the fact of the matter is it does matter and you don't have to be a business owner for these things to really matter, Spell. So, lawsuits, things that get out there that are viral, legal actions, these things can destroy wealth. And what people don't realize is that whether you're a business owner or not, once someone comes at you or after you, if you're not prepared, reputation risk could destroy you.

You don't have to be a business owner. I deal with people all the time who their greatest fear is their reputation gets ruined and they might make a half a million a year as a salaried person or a quarter of a million or whatever it is. Well, that reputation gets damaged, you're not going to be employed anymore.

It's true.

And so these kind of things can and then if whatever you got involved in that caused the reputation damage, if it's legitimate, here come the lawsuits.

Yeah. No doubt.

And you can insure away some of that, but you can't insure away all of that. So, you've got to build in protections. And it could include insurance, but it could include things like an LLC or it could include some kind of veil that helps you avoid those personal assets being attacked.

Yeah, that's true. So, insurance is a safety net, but without structure and strategy, the insurance doesn't really protect everything that you might think it's protecting.

It protects to a point. We see this a lot with when we're dealing with a client. We look at their insurance as just part of our planning assessment so that we can better inform them, right? And sometimes our clients are well insured. And sometimes we don't have to worry nearly as much about say one client versus another because they've done a really good job of insuring themselves or because they've had an agent who really loved to sell them some insurance so they can make say sometimes our clients are overinsured.

Yes. And it's true. It's a good point.

I'd almost rather them be overinsured than underinsured.

Right. But to your point, we can't always insure it away, but we can absolutely do other things to fortify insurance protection.

Yeah. So, just don't underestimate reputation and legal exposure. People just don't believe it'll happen to them. For example, I talk to people all the time with rental properties and they don't think they need an LLC to wrapper that thing. They, oh, I've got insurance. Well, that's great, but you better hope that the lawsuit doesn't exceed the insurance. And you better hope that the opposing counsel is not good enough to pierce all of that because depending on how much they want to fight, who knows? Litigation can get really ugly and really expensive.

It's true. You don't know what might happen at your property that you don't have owned in an LLC.

Yeah.

And even with the best intentions, right, bad things can happen.

True. Accidents happen.

Yeah. They do. It may not be intentional, but boy, when they happen, I've seen more lawsuits occur from an accident.

Yeah.

Even when there were friendships involved.

Yep.

The person sued their friend. And they didn't do it because they wanted to harm the friend. And they did it because their attorney said, "Look, you got you're injured. You deserve this. They have insurance. Let's sue them."

Yep.

Now, the friendship doesn't always prevail or last.

Probably not.

But it happens.

It does happen.

And I've seen best in fact, I've seen a young man sue his mother. So, these things happen. But really though, back on point with reputation.

Yep.

I just think people underestimate that, Spell.

True.

Our reputation's everything. I've heard you say it a lot and you're one of those. We always have called you an old soul and somehow instinctively you know that reputation matters and it does. It's everything.

It takes a lifetime to build it and it takes minutes to destroy it and so protecting that is huge and if you don't build right protections around it could be setting yourself up for financial failure.

It's true. If we go to number two, so here comes wealth killer or stealer number two. And that's family and heir risk. And so your heirs, gosh, you never want to think about them as the people that can create a lot of disruption or the people that can derail your wealth.

Yeah.

But just a few hours ago, Spell, I was on a call with one of our families and they're all over the country, Washington State, New York. So all over the country, and then last week I was on with clients who were from Texas to North Carolina, Alabama, and so they're in multiple states. They fortunately, thinking about those two families, there's pretty darn good harmony.

Yeah, which is really important.

But unprepared if the heirs are not prepared or if there's any semblance of financial disputes, divorce, these kind of things can unravel what looked like a really solid plan or a really solid financial situation. It can unravel it quick.

Yeah. Oh, yeah.

And it's not planned that way, right? But unfortunately, it wasn't planned in such a way to avoid it.

Right. At the same time, well, I think you Phil, you bring a good point and these things that we're talking about usually aren't in the plan. Divorce usually isn't in your plan.

Yeah.

However, your plan should consider, well, what if I get divorced? Or in the event that something bad happens, how do I protect myself or my reputation or my future legacy from these things?

You just hit one of the very things that was talked about on one of these family calls last week and I'll just share it.

Yep.

Here's a family where three great kids are part of this family, all in good relationships, just solid, almost wholesome in a lot of ways is the word that comes to mind. And so then here's the matriarch of the family considering at a fairly late stage of life considering the possibility of marriage.

Mhm.

And unbeknownst to them, there's a lot of risk in that for sure. And even though there's a will and a trust, they're not irrevocable, right? And if they're not irrevocable, then that person can change them. Or the person that becomes their new spouse can persuade change.

It's true.

And persuasion is a really, really strong thing inside of a marriage.

Yes, it

So once matrimony is done, all of a sudden persuasion can do things that you never really thought possible. And sometimes the people outside looking in, maybe they're not even looking because they don't think they have to. They think the will, the trust, all of those things are in place. And so they don't worry about it. And all of a sudden, a person dies. Mom or dad dies and they're told, "Oh, by the way, there's nothing for you."

It's true.

Everything was changed and it's going to someone else.

Yep.

That kind of disruptor happens more than people think.

Yeah.

And all we needed in that situation was a prenuptial agreement, right? Would have protected everything, right? Or something that's more irrevocable.

Yep.

But people don't think that way. And so when it's too late, children end up in severe discord. And sometimes with another family who's not blood-related, but the family that got married into the situation, all of a sudden you have this quarreling and it ends very ugly.

Yes, it does.

People get disputatious and we end up in court and sometimes it's never settled, at least not the way it should have been. But those are just those little things. They don't seem like much, but they can destroy family wealth.

It's true. And Phil, you make a great point that it's not always an outsider marrying into the family. A lot of times it can be unclear inheritance. For example, kids or heirs to these large estates may not know that they're part of a very large estate. And that alone can cause major issues in families.

We see that all the time. called today with the family for the first time, it's been years we've worked with this family and today I had the pleasure of meeting some of the children and or both the children, not the grandchildren, but the children. Wonderful call and they were so thankful to know what's going on behind the scenes, being involved and doing it the right way so that we get these people prepared the right way.

Yeah. Makes all the difference in the world.

The relief that was felt on that call today. They were so excited to learn about all of these things and I don't think theirs won't be a real challenging situation because the kids are already pro mom and dad. They want their mom and dad to enjoy life and if mom and dad die broke, they're happy with that.

Yeah.

But just getting prepared so important and it can help us see some of these pitfalls or these landmines that could be avoided.

These blind spots are real for sure.

And we can fix them sometimes with a stroke of a pen.

Yep.

But you can't insure those things away.

No, you can't.

A prenuptial agreement cannot be insured away.

That's right.

Or any of the things that we just talked about.

That's right. Just can't be insured away.

Yep.

Yeah. Let's move on to number three, Phil, and that's concentration risk. You know a lot about this because you've been at it for a long time. So, what is concentration risk to someone who's listening and may not be familiar with what that is?

Spell, I think people go through life and they get really focused on a business and that becomes the wealth creator, if you will. That becomes what's driving all the income or they become focused on one job. Maybe they've got a great paying job or they

Extremely common.

It's so common and people forget that they need to diversify in a lot of ways when it comes to income generation. Y market risk. A lot of people they've built some wealth and so now they just depend on their portfolio for example to kick off plenty of income and they'll never have to look back.

Yeah.

Well, that's not always the case. And so I think that diversifying income, diversifying investments, you can't insure away these things. Now, of course, you can get disability insurance. If you lose your job for a disability, then it can help replace it, right? But I'm not talking about breaking your leg or losing a limb and now you can't do surgery if you're a doctor. I'm talking about diversification of the source, right?

So that you're not depending on one thing. And so we talk about this a lot with clients. Be bold enough to invest in other things. So portfolios of more traditional style, if you will. So dividend income or interest income, that's great. Earned income is great.

A business income, rental property, those kind of things can really help you avoid concentration risk. The more you can spread it, the better you're going to be in terms of a secure future. But Spell, a lot of people, they just get uncomfortable when they think outside of the norm. And the norm is get up, go to work, earn my paycheck, come home, or start my little business, try to grow it, make a good living, go home.

Yep.

But there's so much more to it. And I think the reason people fail to see this risk is they're not getting good advice. People are not teaching them how to take the right amount of risk to spread these sources of income into places that will begin to repeat and generate income that they ordinarily wouldn't have.

That's right. Well, it's, in this industry, we hear it all the time and people talk about diversification in the traditional sense of, you need to have exposure to this sector and exposure to this sector and exposure to cash and fixed income. And you also hear don't put all your eggs in one basket.

Well, I don't necessarily agree with that in terms of spreading your wealth across multiple institutions, but in terms of putting all your eggs in one basket as it relates to your income, that's not such a good idea because if the basket falls or it gets, the basket of eggs is on the table and the table gets knocked over, you might be the eggs are everywhere. You might be hungry and the eggs are cracked. They're ruined.

Yeah. And they're everywhere. And so that doesn't work, right? And you just made a point, Spell, that reminded me when people get into this mindset of diversification.

Yeah.

We talk about this a lot around the firm and I think it's a missed point.

Yeah.

It's a mispoint to the average person, to the lay person, they think because they've got 12 mutual funds in their portfolio, because their financial guy told them to do that, they think they're diversified. How many times do we run overlap reports and find that the 12 mutual funds that they hold essentially have the same holdings within?

Yep. So they might have 12, but they're no more diversified than if they had one.

But that's not diversification, right? That's simply just helping you with your asset allocation. There's some diversity built into that. But when you start thinking about alternative investments, when you start thinking about commodities, when you start thinking about real estate, when you think about private placements and you think about owning a business, yeah, there and I can keep going.

Oh yeah, we could do a show. We could do a show on that just on diversification easily. And so many people think that, oh well, I've got my mutual fund, so I must be good.

Yeah.

And the fact of the matter is you're not.

Yeah.

Because when the market falls, guess what? All 12 of your mutual funds fall with it in rapid pace.

We'll get right back to today's show. But first, I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button and make sure that you're subscribed to our channel so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan, why not get a second opinion? Visit omnirestarfinanicial.com to schedule a consultation with one of our team members. It's quick, it's easy, and it could make a huge difference in your financial future. Now let's get back to the show.

Now here's one that people miss and this is more for the business owners.

Y

And people miss this all the time but it's key person and succession risk.

Yeah.

People miss it all the time. So for example, Spell, if your wealth or mostly relies or your business mostly relies on one person, and generally in today's world, our country, the United States, is made up of a lot of small businesses. That's the biggest, that's the greatest amount of employment that our country has, right? It represents the greatest level of employment. It's not the Fortune 500 companies.

No, small business. It's business just like us. Small and pop.

So, I think when people have a business, number one, I say congratulations because it's not, I just got off of a call before I walked here to the studio with a doctor that we were talking about, as he gets a little bit older, he's going to be selling the practice, and he said, "Phil, one of my challenges is finding a potential buyer who understands how to run the business."

Yeah, it's true.

And he said, "Phil, they're just not the same." He said, "Phil, you've worked in medical practices for a long time and you know that clinical skill has nothing to do with running the business, right?" And he's exactly right.

And so when you have that kind of key person or succession risk, here's the big challenge.

Yeah.

That owner goes down.

Yeah.

So does the wealth. The family is in peril at that point because even with some disability insurance, they might be insured for 10 or 15,000 a month, but a lot of business owners are making far more than that and they live that way because of lifestyle creep for a lot of them.

Yeah.

And so we have to make sure that businesses put in place, these business owners or these key people, they've got to have the right buy language.

Yeah.

They've got to have key person benefits in place. Now, here's a place where you can insure a little bit. Life insurance. So, if you die, that key person coverage kicks in, right? But if you don't die, then what? Well, the disability can help a little bit.

Yeah.

But disability is never going to replace all that you're used to bringing in.

That's right.

And so, someone's going to need to make a lifestyle change, and family that you're supporting probably gets caught in the crossfire.

Yeah.

And so I believe this one gets missed so much and I only bring it up and put it in the book because there's so many small businesses.

Yeah. There's a ton of small businesses and you brought up a good point that I want to make sure we maybe address a little bit further, just a second or two, but it's not just about big corporations ensuring that they have a succession plan because they're trying to appeal to shareholders and they're making sure that their stock price doesn't plummet if something horrible happens.

But small businesses is important for them as well because small businesses, while it's important for the owner to ensure that the business continues should something happen to them, the owner most of the time in small businesses has employees and those employees may not be able to fill the shoes of the owner. They might have to go get someone else who can fill those shoes.

But if the owner goes down, nine times out of ten, if things aren't structured properly, the business is going down. And then you've got two, three, four, five people without jobs. And so it's not just one person or the business. There's families and lives that can be ruined because you're not structured properly.

Before we move on, I'll give you a quick example because what you just hit on, great point. Business owner goes down, jobs are on the line.

Yeah.

And not only does the business owner have to be concerned about his or her family but those employees depend on them. So real example in the dental space. Dental practice owner goes down. We're talking about a single-owner dental practice. That dental practice, Spell, can lose up to 10% of its value every week.

Wow.

Every week. I didn't say every month or six months. Every week, seven days. That is because the spouse, unless he or she is a dentist, they can't step in and run that practice, right? They don't have the authority to do it, nor can they take any revenue from it, right? If they're not a dentist, right?

So, when that dentist dies, if there's not a bona fide succession plan to bring in another dentist or sell that practice, then spouse is going to be wondering what to do. How do I do it? And they have about nine months to get it done, at least in the state of North Carolina, about 9 months, and they've got to remove that dental practice from their estate.

Yeah, chances are it's going to be worth a fraction of what it was when the dentist was alive.

So, succession planning is so important, but how many times do we bring in a new client or a prospective client and there's zero succession planning? There's nothing.

There's nothing. It happens all the time. That's why it's a silent killer. People don't know about it.

Yeah. Yep. And unfortunately, we've seen this one play out.

Yeah.

Where someone passed or had a severe debilitating disease that hit them and all of a sudden the business just fell apart.

Yeah. It's too bad. It's traumatic. And it's not just traumatic for the owner, the family.

Yeah. Just gets pummeled.

Yeah. So very important that that one not be ignored.

Now, the fifth one. The fifth wealth stealer. My goodness. Really, it's endless today how far this thing can go.

Yeah. It's unbelievable.

I'm talking about cyber and digital risk.

Yeah.

I have never, Spell, and I'm a good bit older than you and so as I go back to my early days in business, you probably didn't know much about it. There was no such thing.

Yeah.

We were into computers. We had computers.

Sure.

And I remember when the internet hit the scene and we had AOL and the dial-up connection. And I hate to age myself, but in my mid-50s, I remember those days when we received this little disc in the mail and you put that in the disc drive and that would turn on your AOL and then you'd subscribe and then you had to plug into the phone port in your house and it was nuts, but it worked.

Yeah.

But we didn't have risk like this. Today, cyber risk is real.

Spell, we have a core, we have courses that we take here in the firm just to be aware of this stuff every couple weeks. And they're simple things. They're not super, well, some of them are extremely elaborate, but a lot of these things are as simple as a fraudulent email asking for your login credentials. That's really simple when you think about all of these schemes that are out there. A fraudulent email is really not the most elaborate thing anymore.

It's, or it's an artificial intelligence voice on the phone. That's certainly more elaborate in my opinion, but they use artificial intelligence to persuade you to withdraw funds from a bank account.

I'm the president of my Rotary club and I got an email, a fraudulent email from someone impersonating our sitting district governor asking me to go and discreetly buy gift cards for people in my club. And I called our district governor and I said, "Hey Andy, I just got an email from you asking me to buy $1,000 worth of gift cards," and she said, "Yeah, you're the fourth person who's called me." I was the fourth person.

So they're moving it around. They're hitting as many and they do it in number, in volume like that, and eventually they get a taker.

Yeah.

And then all bets are off at that point and sometimes you don't realize it until it's too late. The damage is done.

True.

So, this fraud is rampant.

Yeah.

If a listener takes nothing away from today's show other than be sure that you've got your identity protected.

Yeah.

Be sure that you're password protecting, you're using multi-factor authentication. You're using secure cloud storage. Be sure that you've got this stuff buttoned up. Now, if you're a business owner, you can get cyber insurance.

True.

Those things do exist. We carry that here.

Yep.

Those exist. But look, don't forget high-net-worth people. This is not just for the average person. High-net-worth people are susceptible and they are losing six digits a year consistently to this kind of fraud. So, got to get real. You've got to realize that this is out there and these people are after you.

Oh, they're ruthless. They want you.

And I hate to admit it, but I got sucked into it recently.

I know.

I put my credentials in on the fly. They caught me at a bad moment. And that's exactly what they do with it. That's called spear phishing.

Y

And they hit me with this thing, threw in my credentials, and just like that, and I hated to tell anyone around the firm. I thought, gosh, you idiot. But fact of the matter is it happened.

Now, fortunately, our IT folks are great, and in seconds they were into the system, shut it down, got rid of these perpetrators and we were okay, right? But some people aren't so lucky.

Some people aren't so lucky and so I hate that I have to admit that that happened. Now we have even better security now as a result. We get better and better. But those things are real.

It's true. Those things are real.

True. Now Spell, when we take all of this and we turn this into what I say in the book, we refer to this thing as the wealth fortress

The wealth fortress is powerful, man, because you take all of this and you start to figure out how do you protect all of it. And it's not as simple as saying, "I'm going to insure it." That is one of the pillars. You certainly want some insurance, and most of this stuff, a lot of this stuff, you can insure. But you really want to think, and we call it a fortress because we use that metaphorically, so you can really appreciate what a fortress looks like and some of the things that are really consistent or common with a fortress.

Yeah. And I think you were kind enough to create some visuals for us, and so I bet we have a fortress on the screen.

So it is on the screen. So you think about a fortress, you think about a moat.

Yep.

And you think about really thick walls. So typically the way a fortress would be built is an inner wall and an outer wall. And an outer wall would, and they're generally very thick. Some of these walls, if, particularly if you get into the Bible, you'll read where some walls were many, many feet thick.

Mhm.

Hard to penetrate.

Yep.

Still penetrable, but very difficult.

Y.

And so if we take all of those things, if you just try to think about around that fortress, I'm not talking about stone and steel, right? I'm talking about things like insurance.

Yep.

Right. So those are your first layer of protection against things like fire or disability or loss of life, heaven forbid.

Yeah.

Then you would have the moat would be more like your legal entities. And those legal entities, we're talking about LLCs, could be your corporation strategies, could, you, there's a number of trusts, prenuptial agreements. All of those things help with the moat, right? And they just keep a lot of things from getting to the fortress in the first place.

Yeah, for sure.

Then if you think about those trusts would be more like what I refer to in the book as the hidden vaults. And those hidden vaults, they're protecting the legacy. So that missteps, they will occur, but you're still protected.

Got it.

Right. So there's another layer. And then you think about things like cyber. That's one more threat. So you've got to have protection for that within the fortress.

Yeah, those get through walls pretty easy.

Those things get through everything. They get through walls, windows, moats. It's anything you can imagine, it can go.

Well, these people are so good.

Yeah. And they're ruthless, man. They just—

And they keep coming and they keep devising all these ways to do it.

I know. But inside that fortress. So now that we've got that moat, we've got the outer wall, the inner wall, and each one of those represents something.

Yeah.

Then inside, things like your emergency plans. So we tell people all the time, make sure you have emergency funds. Make sure you got things for a rainy day. Those are sort of like the stocked provisions so that when you go through the siege or the rainy day, so to speak, you can live to fight another day.

Yeah.

It doesn't destroy everything. So the way I like to think about it is no single arrow, no single storm, no breach in the wall. You can have a breach, but it's not going to destroy it. And so no matter what, none of those things, and sometimes even combined, can take down the entire structure, right? And if it's not built that way, then you're going to have problems, right? That fortress can fall. And so if your risk management plan, which we believe risk management, one of the elements, it has to be there because it's so important. And this is just a little insight.

Oh yeah.

To what we see every day. But if that plan has redundancy, depth, and a lot of discipline, you can live to fight another day and you'll have the right defenses so that your fortress isn't destroyed.

Y, so important. So the goal isn't just insurance, Phil. It's to protect against a single event or arrow or catapult taking out your entire fortress. That's the goal.

That's right. And if you think about it from that perspective, keep that metaphor in mind. Those things happen all the time and you don't know when it's coming.

Yeah.

You don't know what. So that's why it's so important to get the right insurance, to get the other things in place that can't be fixed through insurance. And what that really boils down to, Spell, is you better have a good plan in place. Better be getting the right advice, and you better take action. If you don't do those things, you're going to have holes. You're going to have these blind spots, and that catapult's going to make it through, and it could be really devastating.

Y.

But these things are avoidable. These things can be avoided, and sometimes all of these things can be avoided with zero risk if done correctly.

Yeah.

Rarely do we see that. But man, we can mitigate a lot of this risk if a person just takes action and gets the right advice.

Yeah, Phil, insurance is important, but it isn't enough. I think we've made that very clear.

One pillar, one pillar.

It's one pillar of many. That there's many when it comes to risk management. People need to realize risk management goes far beyond insuring yourself to safety. It's a help. It's a big part of it, but it's not everything. So you need insurance, but you need multiple layers to help protect what you've spent sometimes a lifetime building.

Yeah. Or your family or your forefathers did that. Your grandfather, generations, could be generational wealth that you're trying to protect. And the minute that you take your eye off the ball, the minute that you take a break—

Yeah.

—there is a good chance that you become vulnerable.

Yeah.

And so the right planning requires really good strategy. And I think that's the part that people miss, Spell, is all of this stuff beyond insurance is not so strategic in my opinion. But the things outside of that, when you're really trying to add extra layers, those second walls, inner walls, outer walls, and the moat, those require strategy.

Yeah.

And strategic thinking. In my opinion, Spell, you hear me say this a lot, I think that's a challenge to our society.

Yes, it is.

People don't think strategically because they have something to push a button on all the time, right? And just get some kind of an answer that they think is good. They don't think. But strategic thinking is so important, particularly when it comes to protecting your wealth.

Speaking of risk management, click here on the screen to hear a video about the hidden cost of having adult children live at home. We'll see you next time on We're Talking Money.