Even though most of us know the importance of having insurance, buying a policy isn’t exactly the top priority. Thoughts about an accident, damage to your car, getting sick or dying are all unpleasant and delay the process of getting the right kind of insurance to deal with the events. The procrastination that sets in when thinking about buying insurance can cause a lot of financial and emotional turmoil when something unexpected happens.
Plus, it’s different from other financial goals such as setting aside money for emergencies or investing in the down payment for a house or just saving for family vacations in the summer, which seem much more worthwhile to plan. . With life insurance penetration below 4% and any form of health, accident or asset insurance even lower, this means many people are uninsured. Unfortunately, even those who have some form of insurance tend to skimp on the insurance they take out. People tend to be heavily underinsured, which exposes their financial plans to vulnerabilities.
What is the role of insurance?
Insurance is about being prepared for the unexpected, allowing you to achieve your financial goals even after facing a crisis. In its most important role, insurance ensures that you don’t have to empty your savings or give up on your other financial aspirations. Insurance can also protect your loved ones if you are injured in an accident, become ill or disabled, or die. Then there are certain situations that can have huge financial implications for those who are uninsured. It is important to take out insurance according to your financial situation and it is recommended that you take out insurance before you start investing in earnest.
Planning, whatever it is, consists of setting objectives to be achieved within a specific time frame. However, all financial plans come with risks that could derail your entire plan, and that’s where insurance comes in handy. Insurance essentially makes it easier to navigate financial hurdles. There are several types of insurance to explore, but you don’t need all the types of insurance available. For example, everyone should have health insurance, but only those who have a car should have car insurance.
Insurance is a means of managing risk. For example, when you purchase insurance, you transfer the cost of a potential loss to the insurance company in exchange for a fee, called the premium. If you think you don’t need insurance, you need to ask yourself if you are financially ready to insure yourself. If there is a gap, make sure.
As long as you know what the cover is and what it is supposed to protect, any policy is good whether it has been used before or not. In fact, insurance is a bet you may want to lose in life, even at the cost of losing money due to the premiums you pay. But, having chosen a policy that acts as a financial safeguard, you can protect your financial goals.
Not a one-time exercise
Arriving at the need for insurance changes dynamically, or at least as one enters different stages of life or faces different circumstances. Sticking to an insurance plan is a crucial part of financial planning, but existing insurance coverage should be reviewed annually and adjustments made as needed. For example, if your debts are going down, you might not need high life insurance coverage. Likewise, if you have sold your car, you must close the policy on it.
Sometimes your original intention for a policy may no longer be appropriate given your current goals. For example, you may have paid off your home loan, leaving your life insurance policy to cover redundant debt. There has also been a lot of innovation in the development of new policies that offer alternatives to some of your existing policies.
Life-changing events such as marriage, additions to your family, changes in employer-provided insurance, retirement and other significant developments that impact your financial plans are another factor for consider a review of insurance needs.
Another important role that insurance plays is to provide peace of mind. No amount of money can replace your life and health, but you can rest assured that if anything were to happen to you, your family’s financial security would be bolstered by insurance.
Unfortunately, insurance is often misunderstood. When purchasing insurance, spend some time looking at the terms and conditions, the coverage the policy offers and, most importantly, understanding the features of the policy and how to use it. When properly understood, insurance is an essential pillar of a solid financial plan.