Understanding Risk Management

Prepared for Platform Houston

Understanding Risk

• Informed– What you know

• Ill-informed– What you should know

• Uniformed– What you don’t know

Understanding Risk

• Assume it?• Mitigate it?• Transfer it?• Avoid it?

Taking Risk

• 1:10,000 Chance of being struck by lightning• 1:1,000 Chance of car being stolen• 2:100 Chance of house catching fire• 3:100 Chance of paid malpractice claim• 12:100 Chance of disability• 26:100 Chance of flooding• 50:100 Chance of assisted living• 95:100 Chance of not retiring financially independent• 100:100 Chance of death

What Are You Focused On

Source: New England Journal of Medicine: Malpractice Risk According to Physician Specialty Anupam B. Jena, M.D., Ph.D., Seth Seabury, Ph.D., Darius Lakdawalla, Ph.D., and Amitabh Chandra, Ph.D.N Engl J Med 2011; 365:629-636August 18, 2011

What You Should Be Focused On

• 1:100 businesses break the million dollar mark

• 50:100 businesses fail in first 5 years

• 5:100 businesses have a business plan

Richest Person in History

What Your Agent Will Never Tell You

• Cross my fingers and hope I’m low• Ideas to reduce my commission• How I block markets• I don’t know…

Duty To Defend

• Is it a policy or a contract?• Does the contract really transfer my rights?

– To decide – To defend

• Is my defense really unlimited?

Close the Back Door

• Who’s cleaning your house?• Who’s name is on the title of your kid’s car?• Who drives the rental car?• What do they think you have?• What do they want when they sue you?

Everyone Pays for InsuranceVery Few Have Coverage

• If it rained today?• I’m being sued by the complex?• I’m getting a used transmission? • If the power was off at the office?• If I send an employee to the bank?• What do you mean the damage is not covered?• Can I copy your coverage and hope I’m low?• What is the real cost of the policy?

What Happens if You Get Hit By a Bus

• Who pays off your debt?• Who finishes the dream?• Do you like your partners spouse?• Does death really change people?• What happens to the employees?• What happens to your family?

I Owe the IRS What?

• Are your disability insurance premiums tax deductible?

• Are your life insurance premiums tax deductible?

• I owe estate tax on my life insurance policy?

You’ll never reach 7.5% of AGI

• Are your health insurance premiums tax deductible?• Are your health cost tax deductible?

– Copayments– Deductibles– Coinsurance – Prescriptions

• Know the terms HRA, HSA, Flexible Spending and Section 125

Rockefeller Paid What?

• 85% of my IRA will go to the IRS?• Who is the Beneficiary on your IRA/401k?• Who’s name is on the contract?• Is that CD to live or leave on?• Wow my son is the chairman of a foundation!• Why didn’t my CPA or attorney tell me about 12/31/2012

It’s a Math Problem We Can’t Solve

• Have you read the cover of your SS statement?

It’s a Math Problem We Can’t Solve

• Have you read the cover of your SS statement?• 7000 people a day are turning 65• Will taxes go up or down?• Start saving today

Personal Risk Transference Iscentials• Auto Liability 500,000• Personal Liability 500,000• Personal Injury 500,000• Excess Liability 2 Million • Personal Residence Cost to Replace• Personal Belongings Cost to Replace• Flood Maximum Available• Health CDHDP-HSA/HRA • Life 10 Year Conv. Term• Disability Based on Income• Long Term Care Age 55 and up

Business Risk Transference Iscentials• Auto Liability 1 Million• General Liability 1 Million• Professional Liability 1 Million• Employment Practices Liability 1 Million• Directors and Officers 1 Million• Workers Compensation 1 Million• Benefits Liability 1 Million• Excess Liability 2 Million • Building/Property Cost to replace• Flood Maximum Available• Loss of income Actual loss sustained

Business Benefits Iscentials• Group Health CDHDP-HSA/HRA • Group Life $50,000• Group Disability 60% of income to 65• Group Dental Better than nothing • Group Vision Better than nothing • Long Term Care 7.5% AGI/Owner, Tax

Ded/Employee

• 401K Safe harbor 5 gets you 4• Profit Sharing Minimize taxes• Cash Balance Plan Eliminate taxes

What To Look For In an Advisor

• Must like and trust• Advice not selling• Knows your situation• Candid vulnerable conversations• Pick knowledge over experience

Prescription without diagnosis…

How Your Advisor Gets Paid

• Commission on Products Placed • Consulting Fees• Wrap Fees

Risk Management Success is Simple

• Start a process and stick with it– Customize presentation – Show at first meeting

• See What happens