Insurance and Your Financial Plan

Proper financial planning will usually involve obtaining some type of insurance.

While it may seem daunting to complete the various parts of a financial plan, insurance may occupy a separate category in terms of procrastination. It’s natural to delay dealing with the possibility of getting sick, getting hurt, losing a home, needing extended medical care, or dying.

These are not fun topics to confront, but they are extremely important. As we approach National Insurance Awareness Day, here are some positive ways to look at insurance and its importance to any financial plan.

Life has value

Insurance provides payment due to loss of life, income, assets or future earning potential. For workers, dying means the loss of income from the time of passing until projected retirement. Becoming disabled means either a partial or a total loss of income for however long the insured cannot work.

If the primary wage earner dies or becomes disabled, a recurring income stream used to pay for clothing, food, schooling, debts and health care costs disappears, which could leave the survivors of the loss in a precarious financial position.

A good life insurance or disability policy should provide immediate access to funds due to loss of life or disability. All of the other bells and whistles merit discussion but should be incidental to this purpose.

You love your family

The main reason to consider insurance is to protect family and loved ones from an unforeseen event. Homeowners insurance protects the family’s living quarters, automobile insurance protects vehicles, and health insurance covers the family if someone gets sick. These are generally accepted as necessary and often are required by law.

How will family members pay the bills if the main wage earner dies? Life insurance is a possibility. Are there available funds if the main wage earner or earners become disabled or need long-term care? If not, it is time to consider disability or long-term care insurance.

It’s the love of family and the desire to protect them that will be the driving force when it comes to the possibility of financial loss.

Life policies can pay tax-free benefits

Once you decide you need to protect your family from the financial fallout of an unforeseen event, you need to figure out how to do so. Life insurance is often considered a lower-risk investment, but the biggest benefit is that beneficiaries will usually receive proceeds free of taxes. That’s a major differentiator from beneficiaries of traditional retirement plans, IRAs and variable annuities.

Without insurance, you’re self-insured

If you are considering skipping insurance, the question to ask is this: “Am I prepared and financially able to self-insure?” If there is a gap, that’s where insurance comes in as a consideration. As long as you are aware of what the coverage is and what it’s meant to protect, it’s a good policy, regardless of whether it’s ever used or not.

A CERTIFIED FINANCIAL PLANNER™ professional is a great resource to help clarify why coverage may or may not be necessary and what insurance options are available.