Developing a strong, thoughtful financial plan is rarely simple and easy. This requires the individual to ascertain his or her current financial position, determine what realistic future financial goals and milestones are and create a plan to get from the current position to the desired future position.
Many people do not realize it, but different types of insurance can be useful with financial planning in various ways. With greater understanding of how different types of coverage can be beneficial, individuals can take steps to improve their planning efforts.
Protection From Financial Loss
A financial plan may provide detailed goals and projections over the course of several years or even decades. While there may be many estimates and projections based on realistic returns, there are also countless things that could happen that could be detrimental to achieving goals established in a financial plan.
For example, everything from a serious car accident or a major weather event damaging a house to a serious illness or even the loss of a family member may result in significant financial loss. In many case, significant events such as these may be difficult or impossible for the individual to recover from, and forward progress toward achieving financial goals can be erased.
Negative Events May Occur
While it is not possible to predict with certainty which negative events may occur or when they may happen, purchasing different types of insurance is a convenient and affordable way to mitigate loss related to unfortunate events. There are numerous types of coverage that individuals can invest in, and coverage amounts can be adjusted as desired to further mitigate loss.
These coverage options include everything from homeowners and auto policies to life policies, disability coverage, long-term care coverage and more. When an individual is properly and fully insured, typically the individual only needs to include the possibility of paying the deductible for different types of claims in a financial plan rather than be concerned about the full financial impact that these events may have.
Minimizing the Risk Associated With Liability
Liability is also a concern for many individuals. Lawsuits filed against an individual may be related to everything from their dog biting another person to a slip and fall accident on their property, a car accident or any number of other events. These types of events can result in expensive legal fees, and a court ruling against the individual could be a considerable financial setback that can eliminate most or all of a person's net worth.
While many types of insurance policies offer benefits that are directly related to the insured's costs, many also have a liability component. For example, auto and homeowners policies commonly include liability coverage. Liability coverage may pay for legal expenses as well as costs imposed on the insured because of a court ruling.
There are many steps that an individual can take to minimize the risk of a lawsuit and to reduce the impact of liability on their financial situation, but it is important to note that even a frivolous or unfounded case filed against the individual can have a truly negative impact on the individual. Protection from these expenses is important when moving forward with a financial plan.
Increasing Your Net Worth
Financial protection from the unexpected is one of the top reasons why individuals purchase insurance, but it is important to note that there are other benefits associated with the purchase of some types of coverage. For example, whole life and universal life insurance policies can be used to increase net worth. These are unique types of life coverage that accumulate cash value.
A portion of each premium payment is added to the cash value in the policy, and this amount also will grow with the application of interest. Essentially, this is an appreciating asset. While premium payments can be used in part to provide financial protection against the unexpected and to better plan for the end of life, the premium payments associated with whole and universal life policies also have true financial benefits that can be used during life.
Cash Value in These Policies
The cash value in these policies can be used for a wide range of purposes. For example, the insured can pull the funds out later in life to use as retirement income, for different investments, to pay off debts before retirement or for many other purposes. This can be truly advantageous to you in many ways as you prepare your financial plan.
Financial planning can seem complicated and confusing, and one of the biggest challenges relates to preparing for the unexpected. Even the best laid plans can be thrown off balance when accidents and mishaps occur or when a lawsuit is filed. Very few lives are without drama and unfortunate events, so including insurance in a financial plan is an affordable, effective way to safeguard planning efforts against loss related to the unknown.
By Andre Bradley