Welcome to the 14th issue of Metrix that Matter, a weekly newsletter from WEALTHMETRIX that helps you focus on what matters most for building and sustaining wealth. Every Saturday, we share an educational essay with actionable takeaways to guide you on your journey to financial independence. 

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What you’ll learn in this issue:

• Why your greatest asset isn’t what you think it is
• The four types of insurance to protect your income and wealth
• The questions you should be asking yourself about your current insurance coverage

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The purpose of saving and investing is to build your net worth until you achieve financial independence – the point where you can live off your assets without needing to rely on income from employment.

When you reach that point, something else happens too. You become “self-insured,” having accumulated enough wealth to handle whatever life throws at you without requiring insurance to protect against worst-case scenarios.

But until you get there, you need adequate insurance in place to protect your family and your wealth-building journey.

Unfortunately, many people either avoid the conversation entirely, leaving themselves vulnerable, or they treat insurance as a permanent fixture they'll always need. 

Neither approach serves them well.

The smarter strategy is to insure yourself until you can self-insure.

Your greatest asset isn’t what you think it is

When people think about their most valuable assets, they typically think about tangible things they can see and touch: their house, their car, maybe their business.

But for most working people, their greatest asset is something they can't see at all: their ability to earn income.

Let’s say you're 35 years old earning $100,000 per year. You have roughly 30 years left in your career. Even if you never get a single raise, that represents $3 million in future earning potential. With modest income growth over time, that number could easily reach $4 million or more.

Yet most people spend way more time and effort protecting assets worth far less than their earning ability. They'll buy comprehensive insurance on a $50,000 car but go without life and disability insurance on their potential $3 million income stream. They'll install security systems to protect a $500,000 house but never consider their ability to keep that house if their income suddenly stopped.

This is one of the biggest financial blind spots people have. Insurance protects the foundation that everything else is built on.

The four types of insurance to protect your income and wealth

While most people are familiar with home and auto insurance, there are four specific types of coverage designed to protect what matters most: your ability to earn income and the wealth you've built. Each serves a distinct purpose in your overall protection strategy.

Life Insurance: Protecting your family's financial future

Life insurance is about replacing your financial contribution if you were to pass away during your working years.

While there are plenty of simple rules of thumb out there to help you calculate life insurance needs, many of them are focused on the wrong number: your income.

Life insurance should be based on your family's expenses, not your income. If you make $200,000 per year, but your family spends $100,000, that becomes the baseline for determining how much coverage you need. Then figure out how many years’ worth of spending you need and adjust by how much wealth you already have.

This is why life insurance needs typically decrease over time. As you build more assets and draw closer to retirement, your family becomes less dependent on a life insurance payout to maintain their lifestyle. Eventually, your investments and savings can replace what life insurance once provided.

Disability Insurance: Protecting your income stream

If life insurance protects your family from your premature death, disability insurance protects them from your inability to work. Statistically, you're more likely to become disabled than die during your working years, yet disability insurance is often the most overlooked coverage.

Ask yourself this: If you couldn't work for the next two years, how would your bills get paid? Your mortgage doesn't disappear because you can't work. Neither do your family's living expenses. 

Disability insurance provides income replacement when illness or injury prevents you from earning your paycheck.

Umbrella Liability Insurance: Protecting your accumulated wealth

As your net worth grows, you become a more attractive target for lawsuits. Umbrella insurance provides additional liability protection beyond what your home and auto policies cover.

This type of coverage becomes increasingly important as you move through your career and accumulate more assets to protect. It's relatively inexpensive coverage that can protect millions of dollars in assets from potential liability claims.

Long-Term Care Insurance: Protecting against healthcare costs

Long-term care insurance covers extended care services that aren't covered by traditional health insurance – things like nursing home care, assisted living, or in-home care services. These costs can be substantial and can quickly erode the wealth you've spent decades building.

While not everyone needs long-term care insurance, it becomes more important as you accumulate significant assets that you want to preserve and pass on to the next generation.

How they work together

These four types of insurance work together to create a comprehensive protection strategy. Early in your career, you need maximum life and disability coverage because you have minimal assets. As you build wealth, your need for life and disability coverage may decrease, but your need for liability and/or long-term care protection increases.

The goal is to have the right mix of coverage for your specific situation, knowing that this mix will evolve as your financial picture changes over time.

What to focus on this week

This week, instead of trying to calculate whether you have the "right" amount of insurance (which requires considering multiple factors), focus on taking inventory of your current coverage and understanding how those decisions were made.

Step 1: List your current coverage

Write down what you currently have in place for each type:

• Life insurance: How much coverage and what type (group, term, whole life)
• Disability insurance: Through work and/or individual coverage, short-term and long-term
• Umbrella liability insurance: What's your coverage limit?
• Long-term care insurance: Do you have any coverage?

Step 2: Think about how you arrived at those numbers

For each type of coverage, ask yourself:

• How did you determine the coverage amount? Was it based on a multiple of your income, your family's actual expenses, or just what seemed reasonable?
• Did the decision consider your entire financial picture: your savings, investments, spouse's income, etc.?
• Was it part of a comprehensive financial plan, or was each decision made in isolation?

Step 3: Consider what's changed

Think about how your situation has evolved since you last reviewed your coverage:

• Has your income increased or decreased significantly?
• Have you gotten married, divorced, or had children?
• Have you built substantially more wealth through savings and investments?
• Have you paid down significant debt or taken on new obligations?
• When was the last time you reviewed and updated your coverage?

The goal isn't perfection

Don't worry if you discover gaps or realize you made decisions without considering the bigger picture. Most people's insurance coverage evolved piecemeal over time rather than as part of a coordinated strategy.

The point of this exercise is awareness. Understanding where you stand today and how you got there is the first step toward making sure your insurance strategy supports your journey toward becoming self-insured.

If this inventory reveals that it's been years since you've had a comprehensive review, or if your financial situation has changed dramatically, it might be time to revisit your coverage with a qualified professional who can help you see how all the pieces fit together.

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Elements Invitation

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WEALTHMETRIX
https://www.mywealthmetrix.com/
(972) 267-7526

102 S. Goliad Street, Suite 101
Rockwall, TX 75087

16475 Dallas Parkway, Suite 840
Addison, TX 75001

Securities offered through Cetera Wealth Services LLC, member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Wealth Services LLC nor any of its representatives may give legal or tax advice. 

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. 

Advisory services may only be offered by Investment Adviser Representatives in connection with an appropriate Cetera Investment Advisers LLC Advisory Services Agreement and disclosure brochure as provided. The output of any financial tool or calculator without such an agreement should be considered to be a part of our brokerage services and not advisory services.

Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Roth IRA: converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.