What does insurance have to do with financial planning?

User Written by Joseph Regan on January 13, 2016.

What does insurance have to do with financial planning?

Financial planning is about building wealth, right? It’s all about working out your financial goals and saving towards them, isn’t it?

Well that’s definitely part of it, but it’s not the whole story. The creation and growth of your wealth through well thought-out, balanced investing that’s is in line with your tolerance to risk is certainly a major part of financial planning, but there is another equally important component – the protection of your wealth, assets and savings with insurance. There are four main types to consider for a really watertight financial plan.

Just imagine that you are one of the unlucky 40 somethings who suffers from a stroke. It’s not as uncommon as you think since more and more middle-aged people are succumbing to the disease, causing an increasing number of people to live with a loss of income due to a disability caused by a stroke. If that were you, how quickly do you think your savings would run out?

That’s where critical illness insurance comes into play. This kind of insurance is designed to protect you and your family against a loss of income due to illness. It doesn’t necessarily have to be a stroke – these policies include a list of specific medical conditions, including the two biggies like cancer and heart disease. If you were diagnosed with any of the listed conditions, you would receive a tax-free lump sum pay-out to provide a financial cushion to help you get back on your feet without having to dip into your savings.

Now imagine that you are not so lucky and your stroke is fatal. What would the implications be for the family you leave behind? Would they be able to meet their living costs? Would your kids still be able to attend college? Would there be any of your personal debts they’d have to pay off? (remember debts are inheritable!). Perhaps they would be forced to downsize because they could no longer afford mortgage payments or change schools because their existing ones are simply too expensive. Life insurance can protect against this scenario, compensating your family for the financial loss of your income, usually with a lump sum payment. While it won’t bring you back, it will certainly make the lives of your loved ones easier as their financial situation won’t be reduced to poverty.

Of course we are all at risk to a whole host of illnesses or injuries in life, not just life-threatening ones, and short of wrapping our families up in cotton wool, it is impossible to protect against every eventuality. We can however protect our savings with medical insurance which will pay for any treatment should we or our dependents get ill or injured. With this kind of policy the risk of you or your family needing costly medical care is transferred to the insurer, giving you peace of mind and saving you tons of money since even simple medical procedures and treatments can break the piggy bank.

One final type of insurance you might like to consider is income protection. This is similar to critical illness protection since it covers you against being unable to work due to illness, but rather than a lump sum payment you receive a percentage of your gross salary on a monthly basis until you can start working again. These payments are usually tax-free and will allow you to maintain your standard of living even when you are not earning.

Wealth protection is a cornerstone of financial planning which you would be foolish to neglect. I can help you find the right type and level of insurance cover for you and your loved ones, thus protecting your hard earned savings from the curve balls life throws at us.

Joseph Regan

Joseph Regan

Posted on January 13, 2016 in Insurance.