Why Insurance Should Be Part of Your Financial Plan

Why Insurance Should Be Part of Your Financial Plan

Having a rough idea of what your future should look like isn’t enough to secure a comfortable retirement. A financial plan won’t guarantee that you’ll enjoy your golden years, but it can help you work toward making that happen. So what is this magical financial plan? It’s a comprehensive assessment of your current financial status, an overview of your short-, mid- and long-term goals and a strategy that will help you reach them.

Building a financial plan

Your financial plan should be unique. But there are certain goals that everyone considers, like buying a home and having children. Some people plan to buy a car or a vacation home, while others plan to focus on starting a business. Some people value the trappings of a luxurious everyday life, while others prefer to save their money for annual trips abroad.

Whatever it is that you want in life, write it down. And since mapping out the rest of your life can be challenging, divide your financial plan into stages of five- and 10-year blocks. Now that you know where you’re trying to go, you can create a roadmap that will get you there.

Start by compiling a list of your assets and liabilities. Include bank account balances, properties, investments, credit card debt and loans. Now that you know where you stand, review your goals for feasibility and create deadlines for reaching certain milestones. Then, you’ll have to budget for every expense you have, from housing and health care to clothing and entertainment. Try to identify areas where you can cut back in order to boost your retirement savings or double down on eliminating debt. This strategy can help you reach your goals much faster. Just make sure you have the right safety nets in place, like an emergency fund and insurance.

The role of insurance in your financial plan

Insurance is an essential part of any sound financial plan. Being prepared for the unexpected will ensure that you can still reach your goals after facing a financial crisis. And an insurance policy will keep you from emptying your emergency fund. Insurance can also protect your loved ones if you’re injured in an accident, become sick or disabled or die. Certain situations can be expensive for those without coverage, so it’s important to purchase any policy you need based on your financial situation. Most experts recommend getting insured before you get serious about investing.

While you won’t need every type of insurance that’s available, everyone should have health insurance. Anyone with a car should have auto insurance and anyone with a home should have a homeowners insurance policy. If you have children or a spouse, it’s also a good idea to get life insurance.

If you’re in the workforce, disability insurance can guarantee that you have a source of income when you’re too sick to work. Those approaching retirement may need long-term care insurance. And if you’re lucky enough to have more than $1 million in savings, you should consider liability insurance in case you’re ever hit with a lawsuit.

Unfortunately, people tend to skimp on insurance. According to Gallup and Sharecare, 12.2% of U.S. adults didn’t have health insurance in the fourth quarter of 2017. More than one-third of Americans don’t have a life insurance policy. And although 95% of homeowners report that they have homeowners insurance, 64% of homeowners are underinsured. Not having enough coverage is almost as dangerous as not having insurance it all.

Why we avoid buying insurance

Even though most of us know that having insurance is important, buying a policy usually isn’t a top priority. And it doesn’t seem as easy as meeting other financial goals, like beefing up your emergency fund by having money automatically transferred into your savings account. Purchasing an insurance plan also forces you to consider the worst possible outcome, like losing your house to a fire or flood. Some people are paralyzed by fear and avoid the subject of insurance entirely.

When it comes to the topic of insurance, consumers also tend to be uneducated. Navigating the insurance marketplace can be confusing and policies don’t always include the protections people expect them to. That’s why many people don’t have the insurance coverage they need.

It may not be fun, but doing your own research and comparing insurance policies is important. Don’t let a lack of understanding prevent you from developing a financial plan that accounts for all of your needs. Reach out to a trusted advisor, financial planner or single online resource (like this blog) to find the help you need. We’re here to help you understand insurance on your own terms.

Don’t set it and forget it

Sticking to a financial plan is just as important as developing one. Every year, you’ll want to review your plan, track your progress and make any necessary adjustments. If you need help along the way, consider working with a financial adviser. Try to find someone with CFP or ChFC designations, which ensure that the adviser is an expert in the field of financial planning. Tools like SmartAsset’s financial advisor match and the National Association of Personal Financial Advisors (NAPFA) search engine can help you find the right financial adviser.

Do you have questions about how home insurance can fit into your financial plans? Contact aHippo specialist. We’re here to help!


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