What would it take to build or repair a V-8 engine? Clearly knowledge, skill and insight into the process that drives it matter. But even given those, it would still be impossible. Anyone undertaking the task would require tools. Some specialized, others more general. Same ideas with plumbing. Curiously the same thing for a financial plan or an estate plan or a succession plan or an investment plan.
For our purpose here we will use the Merriam-Webster definition of tool, “2: a : something (as an instrument or apparatus) used in performing an operation or necessary in the practice of a vocation or profession.”
Tools are necessary and they make the operations more efficient. They are built and used the way they are because people have taken their accumulated experience with the problem and devised ways to better deal with it. Most require specialized knowledge. Do it yourself tends to fail. Often spectacularly. Like a will tool. Or a trust tool. Or a tax tool. Or an investment tool. Or a pipe wrench. Operating with poorly understood tools or no tools at all can be costly.
My specialty is in the area of risk tools. Life insurance and disability insurance of many kinds. It is provably more expensive to use other methods to manage estate liquidity than is life insurance. If you rely on your skill, time and effort to earn money each day, disability insurance is not something to avoid.
The problem many people develop is that they tend to see the insurance component of their plan as somehow important by itself. It is not. It blends and supports other parts. A tool serves a purpose and has no self-aspirations, neither motivations nor goals. It is what it does.
To have the tool fit properly, one must know the aspirations, goals and motivation of the plan itself. Consider other tools present in the plan and their overlapping features. Consider how future modifications are possible. In all cases, know the end purpose.
Most plans that fail or are inefficient, violate the requirement for fit. Insurance poor is a good example. Too much premium because the policies did not fit the clearly defined need. Too little benefit, the poverty only appears much later, because the policy did not match the need. A $100,000 par policy instead of a $2,000,000 term policy for the same or less premium is a poor use of tools when the need is large and the resources limited. That is true even if the par policy is better long term value. Long term value is a canard. Long term value only matters if there is a long term and you buy life insurance in case there is not.
It is possible and even proper to blame the insurance advisor when the improperly used tool appears. It is not wise to fail to assign some blame to the client. It is their plan. They should, even must, retain strategic and tactical control. The client should always ask, “Given my clearly defined purpose for this tool, how does it meet my needs better than other options available?” No clearly defined purpose is why most people end up with poor tools in their inventory.
The same general idea applies to investment products, tax plans, and other tools like wills, trust agreements, corporate structures, shareholder agreements and succession plans.
If you have no idea what you are are trying to achieve, there is no way to decide if the tool is likely to work efficiently. Don’t begin with tactics, begin with strategic vision.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772