Maya and Alex Chen have a familiar mix of risks that do not show up neatly on a tax return. They have $180,000 of household W-2 wages, two children ages 9 and 6, a $650,000 home with a $420,000 mortgage, $140,000 of liquid investments, and Chen Design LLC (an S corp) throws off $40,000 per year of net cash flow available to owners. They already carry $250,000 of 20-year term life on Maya, $150,000 of 20-year term life on Alex, and a $1,000,000 personal umbrella. The business and family goal is protection of lifestyle and continuity if something goes wrong, and the CPA deliverable is a documented insurance review workplan rather than selecting a carrier or a specific product.
Before we look at policy pages, we decide what could financially break the plan and what the client can absorb. The practical sequence is to list exposures, assess each exposure’s severity and probability, choose a response, then document assumptions so the file shows why the scope is what it is.
The response decision uses four buckets. Avoid means changing behavior so the risk does not exist. Reduce means lowering frequency or impact with controls. Transfer means shifting the financial impact to another party, commonly through insurance. Retain means accepting the risk and paying it from resources when it occurs, which is the plain-English meaning of self-insuring. Missing this decision step leads to a common failure mode in reviews, which is accumulating policies without tying them to the specific loss the family or business is trying to survive.
An exposure is usually “insurable” when the potential loss is accidental, measurable, and large enough that it would strain liquid assets or income if it happened tomorrow. A risk is usually a candidate to retain when the loss is small relative to liquidity, or the client can change operations to reduce it faster than an insurance contract would. For the Chens, we would expect high-severity exposures to include premature death of a wage earner, disability reducing earned income, and liability losses that can pierce the umbrella limits, while lower-severity items might be routine property deductibles that can be handled from cash reserves. To turn that into a workpaper rather than an opinion, we classify the exposures on a simple grid and then choose one of the four responses for each, so we can defend the review scope in writing. Make your selections on the grid before we discuss what the classification implies.
Your grid choices tell us which risks are candidates for transfer and which are candidates for retention, and that becomes the boundary of what documents we request next.
Workpaper tip A scope statement that names the top exposures prevents scope creep into product comparisons.
Once we know what we are reviewing, the next business problem is that the file is often incomplete. A declarations page might show a limit, but omit exclusions or renewal features that control whether the limit is meaningful. A disability policy might quote a benefit amount, but the elimination period and definition of disability can change whether the family actually gets paid during the months they need cash. If we do not inventory these terms, our analysis can be wrong even when every dollar amount is copied correctly.
A usable inventory captures five categories for each policy. Policy terms include policy type, effective date, renewal provisions, and any guaranteed versus non-guaranteed features. Ownership and beneficiary fields identify who owns the policy, who receives proceeds, and whether the policy is personal or tied to the business. Amounts and limits capture face amount, benefit, deductibles, and any sublimits. Exclusions and waiting features capture riders, exclusions, elimination periods, and waiting periods that delay or deny payment. Premium and funding captures premium mode, who pays it, and whether premiums are level, stepped, or subject to re-rating at renewal. A missing field is not a minor clerical issue because it creates an unscoped risk. We do not know whether the coverage responds until we see the actual contract terms or a carrier-issued schedule.
The clean way to gather this is to request a standard packet for each line of coverage, then reconcile the packet to what the client believes they own. Typical items include declarations pages for P&C and umbrella, in-force illustrations and policy schedules for life policies, rider schedules, the employer plan summary plan description for group benefits, and any business agreements that the insurance is meant to support. The point is not to drown the client in paperwork. The point is to ask for the minimum set that lets us verify ownership, beneficiaries, and claim-trigger terms, because those are the fields that cause the biggest planning failures when they are assumed. Sort the requested items into the bucket that tells us what risk it helps evaluate.