It’s been a very rainy week in Minnesota, and as Matt wrote in his blog post a few weeks ago, you could feel the tension in the air heading into the midterm elections. Even after hearing the results, questions remain. How will the outcome affect public policy? My investment portfolio? My estate plan? My taxes?
My own life has plenty of uncertainty, too. I’m in my 8th month of pregnancy, and I feel it every day (literally and figuratively). When is the baby coming? Early? Late? Quickly? Slowly? How will my four-year-old react to becoming a big sister? Will she feel like I’m abandoning her for her little sister?
And on top of all of that, I have to make my elections for my annual benefits enrollment. Which plan should I choose? Do I buy up additional disability or life insurance? Is my own life and disability insurance sufficient?
I could dwell on these things and send myself into a spiral of inaction. Or I could release the things I cannot control (the serenity prayer is known worldwide for a reason) and focus on the things I can.
Today, I want to walk through three of the risks I talk about with clients on a regular basis (disability, premature death, and long-term care) and some of the ways we advocate that clients let someone else carry part of the load.
And since it’s open enrollment season and you may be making elections on your group insurance benefits, it’s a great time to take stock of the risks you are carrying yourself and the risks you want to insure.
Risks We Can’t Control
Let’s start with the scariest part. The first risk we can’t control is our health. My family keeps a prayer list, and every night before my daughter goes to bed, we say a prayer for many of the important people in our lives, including the people we know who are grieving or ill. Unfortunately, that segment of our list is never empty. Sometimes we get to take someone off because they’ve recovered, but often we say the same names for months and months without really knowing what the future holds.
We never know if or when illness or death will find us or someone we love. It’s a fact of life we cannot anticipate with any certainty.
Coming up for air, here are some other things we do not ultimately control:
- The weather
- Flight delays
- What other people do
- Election outcomes
- When the next recession occurs
- What our investment accounts will do tomorrow
- What our house will be worth when we want to sell it
Managing risk, though, is not about eliminating uncertainty in our lives. It’s about deciding what we’ll do about it.
Risks We Can Decide How To Carry
Confronting the risks in our lives is the first step. But we can’t let ourselves be paralyzed by the things we cannot change. So instead, as Matt put so well in his post, let’s focus on the real planning questions at hand. In this case: which risks do we want to retain, and which do we want to insure?
Before I start talking about insurance, a caveat: insurance is not the only way to meet our financial goals. Some clients deliberately retain risk, for example by holding a large cash reserve and self-funding. But insurance is an important tool in the toolbox when we weigh the risks we want to take on against the risks we want to transfer.
And let’s be honest: some insurance isn’t optional. Auto insurance is required by law, and mortgage lenders typically require homeowner’s insurance. The coverage we’re discussing here is different. No one is checking whether you’ve planned for your family’s liquidity in the event of premature death, or whether your income would survive a disability. That’s part of the reason these coverages are so easy to put off.
Let’s look at three places where this plays out: disability, death, and long-term care. In each, there is something we can’t control and a decision we can.
Disability
You can’t control whether you become disabled during your working years. You can control whether you carry disability insurance.
Think of the high-income executive. Their portfolio may survive a long-term debilitating illness, but losing several years of peak earnings could substantially change the trajectory of the plan and the financial goals within reach.
Many people have group long-term disability through work. That’s a start, but don’t automatically assume that whatever you get through your employer’s benefit plan is adequate. Group disability benefits often:
- Exclude bonus income
- Are taxable if your employer pays the premium, which erodes the value of the benefit
- Replace only a percentage of base pay (commonly around 60%), often with a monthly cap that hits high earners hardest
- Define disability narrowly, so benefits stop if you go back to work, even part time
I’ve spoken with people who relied completely on their group benefits, only to find that the benefit didn’t cover their bills. But if they went back to work (even part time), the benefit would stop. And they weren’t physically or mentally recovered enough to go back to work at a job that would pay all of their bills. That is a nasty cycle, and it’s not a situation you want to put your family in.
I know this risk feels far off for most people. However, roughly 25% of today’s 20-year-olds could expect to be out of work due to injury or illness for at least a year before they reach normal retirement age. That’s a larger percentage than I’m willing to bet against in my own life. And the most common causes of long-term disability are broad. The Council for Disability Income Awareness cites the most common reasons as:
- Musculoskeletal disorders (26%)
- Cancer (15%)
- Injuries such as fractures, sprains, and strains of muscles and ligaments (11%)
- Mental health issues (9%)
- Circulatory (heart attack, stroke) (9%)
Notice how many of these could happen to anyone, at any age, with no warning. That’s the part we can’t control. If you’re making elections this month, ask HR three questions: How does the plan define disability? What percentage of pay does it replace? Does it cover bonus income? The answers will tell you how much risk you’re really carrying.
Paying an annual premium to make sure your family has adequate liquidity in the event you are part of the 25% feels like a pretty good tradeoff.
Death
You can’t control when you die. But you can control whether your family, your business, or your estate has enough liquidity when it happens. Consider a few examples.
The young family. I’ll put myself in this bucket. I have a husband, a daughter, and a baby on the way, and (hopefully) many earning years ahead of me. But if I passed away today without life insurance, my family would have to dramatically change their lifestyle just to pay the bills every month. That’s not a risk I want my family to shoulder, so I carry term life insurance on my life and my husband’s.
The business owner whose wealth is tied up in the business. Many business owners I talk to have most of their net worth in the business, and when a cash windfall hits, it’s mostly poured right back in. That works while it works. But what if the owner passes away? Depending on how dependent the business is on the owner for generating business, it may not be able to continue and may not be sellable. The family is left with a large asset that will probably not sell for what it could have if the owner were still around. Life insurance gives the family cash right away, so the business doesn’t have to be sold under pressure.
The business owner with a business partner (or five). If one owner died, the surviving owner may not have the liquidity to buy out the deceased owner’s family. Now they’re in business with the deceased owner’s spouse, with no clean or expeditious way out. A buy-sell agreement funded with life insurance gives the surviving owner the cash to complete the buyout and gives the family a clean exit.
The business owner with a child in the business. Many business owners eventually have an adult child who is highly involved in the business, along with other adult children who are not. The owner wants the child in the business to ultimately inherit it, but the rest of the balance sheet isn’t large enough to create parity with the other siblings. Life insurance can fill that gap: the child involved in the business inherits the business, and the uninvolved children inherit the same share in cash or investments.
The retiree doing Roth conversions. Many of our clients have incorporated Roth conversions into their planning, both to reduce Required Minimum Distributions (RMDs) down the road and for efficient wealth transfer. If your children inherit a Roth IRA, they don’t pay tax on it. If they inherit a traditional IRA, they pay ordinary income tax on every dollar they withdraw, and most must empty the account within 10 years. Because most people convert only a little each year to stay mindful of their tax bracket, there’s a risk you won’t finish converting before you die. A life insurance death benefit is generally income-tax-free, so a policy alongside your conversions can give your heirs the liquidity to pay the tax on whatever remains in the traditional IRA. Again, this is a risk you can choose to retain, but some prefer to insure it.
Long-Term Care
You can’t control whether you’ll need long-term care. You can control whether you earmark assets for it, deliberately self-fund, or insure it.
Consider a client with a net worth of $10,000,000. Could they pay for a couple of years of long-term care from their net worth? Well, yes. But that’s different from deciding whether they want to retain 100% of the risk. Those investment dollars could sit in an account to self-fund long-term care expenses, or an insurance company could provide a contractual benefit if a long-term care event occurs, a benefit that may be worth more than the same dollars would be if they simply stayed invested. For many of our clients, that trade-off is worth it.
And let’s put some perspective on what long-term care costs today. According to Genworth’s CareScout tool, the median national costs in 2025 for care are:
- $80,080 for in-home care,
- $74,400 for assisted living,
- $114,975 for a semi-private room in a nursing home, and
- $129,575 for a private room in a nursing home
These are big expenses, and that’s just the national median. The cost of care in your area could be higher depending on where you live.
It’s also worth knowing what won’t pay for it. Medicare generally doesn’t cover long-term custodial care, and Medicaid generally requires you to spend down most of your assets before it steps in. Without a plan, the default is often self-funding, or care provided by a spouse or adult child.
That last point matters, because the cost of long-term care isn’t only financial. When there’s no plan, caregiving often falls on a spouse or adult child, who may cut back on work or set aside their own plans to provide it. Having a plan gives your family more choices: paid care at home or in a facility, rather than becoming caregivers by default.
There are a few ways to transfer this risk: traditional long-term care insurance, or hybrid policies that combine life insurance or an annuity with a long-term care benefit. Traditional policies typically cost less up front but may see premium increases over time. Due to the uncertainty of rising premiums, we typically prefer hybrid coverage. Hybrids offer more certainty but cost more up front.
Either way, coverage requires health underwriting, so the decision has to be made while you’re healthy, before you know whether you’ll need it.
So the question becomes: do you want your investment portfolio to take on the full burden of potential costs, or do you want to spread out some of that risk to an insurance company?
Making The Decision
Not every risk needs to be insured. A few questions can help sort what to retain from what to insure:
- How damaging would it be if this happened?
- Could we absorb it without changing our plans for our family?
- What would it cost to transfer it to someone else?
Insuring some of life’s biggest risks, especially around illness and death, can provide financial relief and help you and your family focus on each other rather than on a new financial strain.
If you’re making benefit elections this month, take 15 minutes to list the risks you’re carrying yourself and the risks someone else is carrying with you. Your advisor can help.
There will always be risks. What are we comfortable owning, and who do we want to carry the rest with us?
Sarah Leitzke
Director, Risk Management
Trevor Cummings
PWA Group Director, Partner
