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.
Seeking Financial Freedom? Work On The Financial Planning Process For The Road To Financial Freedom
Step 6 - Estate Financial Planning & Writing of Will
No financial plan can be considered complete without consideration of planning your estate. A comprehensive financial plan is one which includes wealth accumulation, wealth preservation and lastly wealth distribution.
Estate planning involves wealth preservation and wealth distribution, or in simple language, it is the compilation of a person’s assets and liabilities and the steps taken to ensure the transfer and control of assets are managed to maximize the benefits to the deceased’s estates and beneficiaries, i.e. family. Contrary to what most people believe, estate planning is not just about the writing of a will, although it is a very important part of the process. Besides a well crafted will, a comprehensive estate planning process should also include objectives such as protecting assets from creditors, ensuring business continuity and canceling personal guarantee ship that cannot be achieved with just a will alone.
An estate plan therefore should also include an assignment of power of attorney, a health care proxy and a trust. The assignment of the power of attorney gives someone you trust the ability to manage your financial affairs and make decision on your behalf, while a health care proxy, or medical power of attorney, gives someone the power to make decisions about your medical condition if you're unable to do so. A trust is another way of passing on money and other assets to heirs. In many ways trusts are more hassle-free than wills. They don't have to be processed in court, and therefore, avoid many costs and delays. They also get around some of the high taxes that can be attached to an inheritance.
Like the saying goes, only two things are certain in life, i.e. death and taxes. The scariest scenario for your beneficiaries would be if under unforeseen circumstances, they are left without a will and the distribution of your assets has to be decided by the courts. A well written will ensure that if anything should happen to you, your family will be taken care of in precisely the way you have determine. Your family will also not have to undergo the agony, delays and difficulties of the legal procedures at the courts in seeking their inheritance. The sad truth of the matter however, is that there are many people who do not have a will let alone practice estate planning.
One reason why many people had failed to include estate planning in the financial plan could be attributed to the reason that discussing death is a taboo to these people. Other reasons could be their misconception that estate planning is only for the rich or for the older folks. They may also be thinking that engaging estate planner would be expensive or that buying the correct amount of insurance would be sufficient.
The importance of estate planning cannot be emphasized enough for everyone who cares about his family. For a person without much assets, having a will is crucial so that their assets can be immediately distributed to their loved ones upon their. The children of older couples may already be financially stable and therefore are less likely to suffer if their parents did not plan their estate, whereas for the children of younger couples are still very much dependent on the assets left behind. Hence, the estate planning process should be done as early as possible and not be delayed till old age.
Estate planning involves wealth preservation and wealth distribution, or in simple language, it is the compilation of a person’s assets and liabilities and the steps taken to ensure the transfer and control of assets are managed to maximize the benefits to the deceased’s estates and beneficiaries, i.e. family. Contrary to what most people believe, estate planning is not just about the writing of a will, although it is a very important part of the process. Besides a well crafted will, a comprehensive estate planning process should also include objectives such as protecting assets from creditors, ensuring business continuity and canceling personal guarantee ship that cannot be achieved with just a will alone.
An estate plan therefore should also include an assignment of power of attorney, a health care proxy and a trust. The assignment of the power of attorney gives someone you trust the ability to manage your financial affairs and make decision on your behalf, while a health care proxy, or medical power of attorney, gives someone the power to make decisions about your medical condition if you're unable to do so. A trust is another way of passing on money and other assets to heirs. In many ways trusts are more hassle-free than wills. They don't have to be processed in court, and therefore, avoid many costs and delays. They also get around some of the high taxes that can be attached to an inheritance.
Like the saying goes, only two things are certain in life, i.e. death and taxes. The scariest scenario for your beneficiaries would be if under unforeseen circumstances, they are left without a will and the distribution of your assets has to be decided by the courts. A well written will ensure that if anything should happen to you, your family will be taken care of in precisely the way you have determine. Your family will also not have to undergo the agony, delays and difficulties of the legal procedures at the courts in seeking their inheritance. The sad truth of the matter however, is that there are many people who do not have a will let alone practice estate planning.
One reason why many people had failed to include estate planning in the financial plan could be attributed to the reason that discussing death is a taboo to these people. Other reasons could be their misconception that estate planning is only for the rich or for the older folks. They may also be thinking that engaging estate planner would be expensive or that buying the correct amount of insurance would be sufficient.
The importance of estate planning cannot be emphasized enough for everyone who cares about his family. For a person without much assets, having a will is crucial so that their assets can be immediately distributed to their loved ones upon their. The children of older couples may already be financially stable and therefore are less likely to suffer if their parents did not plan their estate, whereas for the children of younger couples are still very much dependent on the assets left behind. Hence, the estate planning process should be done as early as possible and not be delayed till old age.
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