The Role of Insurance in Financial Planning

The fundamental objective of insurance is to provide a means to offset the burden of financial loss. Think of insurance as an alternative method of dealing with risk. You are paying an insurance premium (small cost) to avoid paying the total cost for a catastrophic loss (such as your house burning down).

A sound insurance program should answer the “what ifs” in your life. For example:

What if you were faced with a major medical expense or nursing home confinement? (health and long-term care insurance)
• What if you were unable to work for a long period of time due to a severe illness or accident? (disability insurance)
• What if someone injured themselves on your property? (homeowner’s insurance)
• What if a fire destroyed many of your personal possessions? (homeowner’s insurance)
• What if you were involved in a severe automobile accident? (auto insurance)
• What if you were to die tomorrow? (life insurance)

Insurance affects everyone. Few people could own their own home, drive a car, attain adequate medical attention or provide financial security for their family without it. By providing the means to help people accomplish their goals without fear of catastrophic loss, insurance can improve the quality of life. It is, therefore, important to be aware of the major types of insurance coverage.

Life Insurance—provides a lump sum payment (or sometimes a series of payments) in the event of the death of the family breadwinner.

Disability Insurance—provides a monthly income benefit in the event the family breadwinner is disabled (unable to work) because of an accident or long term illness.

Medical (health) Insurance—provides for coverage in the event of hospitalization and medical expenses arising from injury or sickness.

Property, Casualty, and Liability Insurance—provides protection from the claims of others as well as the loss of personal property. Most typical policies are automobile and homeowners/renters. Each provides a variety of coverage’s.

Long-Term Care (LTC) Insurance—Skilled, intermediate or custodial care in a nursing home facility or home confinement. (For those 50 to 80 years old)

Please take the time to complete the insurance checklist and then review all of your various insurance policies (both personal and group—those provided by your employer). The intent is to make you aware of the types of insurance coverage you have in force. Don’t spend time analyzing each policy, but do record the basic information on each.

When you meet with an insurance agent to review your insurance program, you should:

• ask about an umbrella policy—one which offers coverage after the limits of your automobile and/or homeowner’s/renter’s policies have been exhausted.
• discuss premium savings that would occur if you increased your deductibles.
• ask how to protect yourself from uninsured or underinsured motorists.