This is the fifth installment in our “Smart Financial Moves” series, where we explore essential financial strategies for high-income individuals looking to build wealth efficiently and effectively.
In Chapter 4, we explored Investment Strategies. This week, we’re continuing with Insurance and Protection.
When people think about building wealth, insurance often takes a backseat. I get it. It’s not exciting, it doesn’t generate returns, and frankly, it’s something most people hope they never have to use.
But here’s what I’ve learned working with families over the years: insurance isn’t about investing. It’s a risk transfer tool that lets you move catastrophic financial risk off your balance sheet.
Done right, it creates space for you to pursue aggressive growth in other areas of your portfolio with complete confidence.
I want to be transparent from the start. We don’t sell insurance products. We analyze them, we advise on them, but we don’t profit from selling them.
There are inherent conflicts when you’re giving advice and selling products, and I’ve chosen to focus purely on the advice side.
Table of Contents
Term vs. Whole Life Insurance
One of the most common questions I get is about term versus whole life insurance. The way I explain it is simple: term is like rented insurance.
You pay premiums for a set period, and if something happens during that window, your family gets the payout. If the term expires and you’re still around, that money is gone, just like rent.
Whole life and universal life are different animals entirely. They bundle insurance with a cash value component that grows over time. These policies have their place in advanced estate planning, but for most families, they’re unnecessarily complex and expensive.
The reality is that term insurance accomplishes what most people actually need: affordable risk mitigation during their peak earning and spending years.
I see whole life as something you consider only after you’ve handled everything else in your financial plan.
How Much Coverage?
The need for life insurance boils down to a simple question: who depends on your income? If you’re single with no dependents, you probably don’t need it. But once you have a spouse or children relying on what you bring in, it becomes essential.
My framework is straightforward: 10 to 15 times your annual income. Someone earning $400,000 would look at roughly $4 million in coverage. It’s a starting point that makes intuitive sense and provides meaningful protection.
Of course, this isn’t a one-size-fits-all calculation. If you’re dealing with health issues or hereditary diseases, coverage becomes significantly more expensive. You may need to accept less insurance because the cost simply doesn’t make financial sense.
Someone in their 40s with a degenerative disease might find coverage prohibitively expensive, and you’ll need to weigh whether that condition is likely to affect you during your peak earning years when your family needs protection most.
But I don’t stop there. Rather than buying one massive policy, I often recommend laddering multiple term policies to match your family’s financial lifecycle. Your expenses peak when your kids are young; think college tuition, activities, larger homes.
You might structure it like this:
- $2 million for 10 years (covering the heaviest expense period)
- $1 million for 15 years
- $1 million for 20 years
This approach gives you maximum protection when you need it most, then scales down as your obligations decrease. It’s more cost-effective than maintaining peak coverage for decades when you no longer need it.
Many of these term policies also come with convertible options, which can prove valuable down the road. If getting coverage becomes more difficult later, or if your estate planning needs evolve as you build wealth, you can convert to permanent coverage without going through underwriting again.
And yes, both spouses should have coverage, even if one doesn’t work outside the home. If something happens to a stay-at-home parent, you’re replacing real economic value: childcare, household management, family coordination. That costs serious money.
What doesn’t make economic sense? Life insurance on children. I’ve never understood the rationale. Children don’t produce income or contribute financially to the household. Insurance salespeople push this because they earn commissions, but there’s no real logic behind it.
Umbrella Insurance
As your net worth grows, so does your exposure to litigation risk. That’s where umbrella insurance becomes valuable, and fortunately, it’s relatively inexpensive.
If you already carry auto and homeowners insurance, adding umbrella coverage typically costs very little. My baseline recommendation: once you reach around $500,000 in assets, carry at least $1 million in umbrella coverage. Scale up from there.
This becomes even more critical if you own real estate, run a business, or maintain any kind of public profile. You simply don’t want anyone reaching your assets, regardless of how much you have.
Disability Insurance Gap
Here’s something that might surprise you: you’re statistically far more likely to become disabled than to die early. Yet disability insurance remains the most overlooked protection I encounter.
This happens for several reasons. Unlike health insurance, where you receive regular, tangible benefits, disability insurance operates quietly in the background.
People struggle to imagine themselves unable to work during their peak earning years. There’s also a psychological barrier: the “it won’t happen to me” mindset that clouds our judgment.
The coverage itself is often poorly explained and needlessly complex. Many employer plans offer disability benefits, but they’re typically inadequate and difficult to understand.
Most advisors don’t specialize in this area either. They don’t fully grasp how disability insurance works, so it gets pushed aside.
For professionals and business owners, I recommend supplementing group coverage with individual policies that target 60 to 70% of your gross income. Your earning ability is likely your most valuable asset, so protecting it just makes sense.
Balancing Cost with Protection
The key to getting insurance right is understanding what you’re actually buying: risk transfer, not investment returns. You’re paying premiums to shift catastrophic financial risk away from your family.
This means thinking strategically about cost versus benefit. With disability insurance, for example, you might choose a six-month waiting period instead of immediate benefits to cut premiums significantly. If you can handle that risk, the savings could be worthwhile.
Here’s my rule: if insurance premiums prevent you from saving 20% of your income, something’s wrong. Your coverage might be excessive, duplicative, or poorly structured.
When to Review
I recommend annual reviews as part of comprehensive financial planning. When we work with clients, we build plans that show where someone stands in their financial journey and where they’re headed. Then we adjust everything for life events and milestones.
Certain events demand immediate attention:
Life changes: marriage, divorce, children, job changes, buying or selling homes or businesses, health diagnoses.
Financial milestones: paying off your mortgage, kids becoming financially independent, retirement transitions, significant net worth changes.
These moments shift your risk profile, and your insurance should shift with it.
The Integration Piece
What I want to emphasize is that insurance should fuel your wealth-building strategy, not limit it. When we work with families on comprehensive planning, insurance creates the foundation that makes everything else work better.
Think of it as creating breathing room. When you know catastrophic risks are covered, you can pursue growth opportunities with genuine confidence. You can take calculated risks in business or investments because you’ve already walled off the big, life-altering threats.
From a holistic perspective, insurance takes a backseat to active wealth-building strategies, but it provides the strategic protection that enables growth in other areas of your portfolio.
The goal isn’t to perfect your insurance. It’s to get it right enough that it serves its purpose without dragging down everything else you’re trying to accomplish.