Insurance certainly plays an important role in the financial planning process in the context of the managing of one’s investment risks. In financial planning, a logical step to improve and increase one’s net worth is to indulge in a careful and a well implemented investment plan. You would require time to be on your side and also the patience not to plunder into your investments long enough to allow them to grow through compounding.
However, we do know that unforeseen events do happen. It is therefore sensible and pertinent to take the necessary precaution in managing your investment risks by including some relevant insurance policies into your financial portfolio. Purchasing the right type of insurance is of paramount importance and certainly a necessity in ensuring and achieving success in your financial goals and objectives.
Two very important insurance policies recommended in your financial investment plan portfolio and the reasons for their recommendation are stated below:
1. Term Life Insurance with TPD (Total Permanent Disability) rider.
“Buy term and invest the difference in a diversified portfolio of long term investment instruments” is the call of most well meaning financial planners. The reason for it is that term life insurance is the cheapest form of life insurance in the market and the purest form of life insurance with a protection element only without any savings features built into it. Therefore, a term life insurance policy provides more protection coverage for a smaller annual premium. This will allow you to stretch your insurance dollars the furthest and to invest the difference in savings and investment vehicles that have higher long term historical returns. A term life insurance policy with a TPD rider will provide pure protection in the event of death and also in the event for total disability.
With the right amount of term life insurance in place, you will be able to allow sufficient time for your investment portfolio to mature to achieve your financial goals within the period before the term insurance policy expire.
2. Medical Insurance
A financial plan with the intention of managing your investment risks will not be complete without a medical insurance policy with critical illness coverage and hospitalization and surgical (H&S) coverage. A financial investment plan can be derail if one should suffer the tragedy of succumbing to any life threatening illness such as cancer, diabetes, etc causing the person to lose his job and income before the financial goal of his investment plan materialize. The cost of treatment which may be exorbitant from the hospital expenses and surgery needed would cause you to use up the emergency funds and in the worst scenario may require you to withdraw from investment program before it mature if a medical policy was not purchased earlier.
The quantum of amount of term and medical insurances required will depend on the individual needs and financial dreams of the individual.
There are other types of insurances for a more comprehensive financial program but the above two types of policies above are certainly vital in the managing of your investment risks. It certainly is a folly to ignore the importance of insurance in the financial planning process.