Tips & Advice

5 Reasons Why Insurance Should Be in Your Personal Financial Planning

Having insurance can help you in the event that you are unable to work. Find out how to include insurance as part of your financial planning moving forward.

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Tips & Advice
Husband and wife smiling probably being grateful that they are financially stable.

You may know insurance as a protection and investment product. But do you know insurance is first and foremost a financial product?

The uniqueness of insurance is that it provides financial cover to protect against life’s many contingencies.

But what is personal financial planning and why do you need to take charge of your finances?

Planning your finances means taking charge of your money in and out not just by charting your income and expenses, but also by supplementing your savings and protecting the assets and liabilities you have.

And with the rising cost of expenses and lifestyle due to inflation, including insurance as part of your financing planning is the fundamental step to p family from potential financial stress, especially in your absence.

While you do not need to buy every insurance policy available in the market, the most important insurance you should consider getting is life and medical insurance. And if you have a car, get car insurance. If you own a house, get home insurance to protect your home and home content. It is simple.

A diagram explaining the types of personal financing plan that can be taken by an individual.

So, what does insurance have to do with your personal finance management?

We have explained earlier that insurance is an essential part of our lives. Preparing ourselves for the unexpected, especially incidents that could impact us financially, ensures that we can still achieve our financial goals.

Besides protecting your lifestyle and family from potential financial burden, here are 5reasons why insurance should be included when you plan or manage your finances:

  1. It will give you peace of mind knowing that you don’t have to dip into your savings and emergency fund or reimburse what you have paid in advance after you have submitted your claim.
  2. Insurance helps you mitigate risks such as loss of income if you are hospitalized for an injury or become temporarily or permanently disabled after an accident.
  3. Insurance can act as your financial security when you must shoulder the loss of property, vehicle, or other assets and belongings.
  4. Different types of insurance policies cover different types of risks that you and your family could face. With appropriate planning, you can create 360-degree financial protection without going over your budget.
  5. You can also maximize your tax relief when you claim for life, education, and medical insurance, depending on how much of your premium you can claim annually.

Hence, when you plan your finances, you should consider the type of insurance you need to purchase for optimal coverage based on these factors:

  1. The type of lifestyle you have and what insurance you need to purchase to protect that.
  2. The number of dependents you currently have.
  3. The existing assets and liabilities you need to insure.
  4. Other financial obligations you need to fulfill in the short and long term.

When you have these factors figured out, you can then make an informed decision on how much coverage you need and start picking the right insurance plan for peace of mind.

a photo of bar and pie charts displayed in a tablet with calculator being clicked to show the person is doing his or her personal financial plan.n

But why aren't people buying adequate insurance protection?

No matter how many awareness campaigns are created by insurance companies and institutions, there are many reasons why some people are still reluctant or refuse to buy insurance policies or not making it a top priority.

Some of the reasons why the public does not prefer to buy insurance:

  1. Insurance is not a fun thing to learn about, hence they choose not to get themselves involved in something that they have little awareness of.
  2. They are unsure who to reach out to when they want to find out about insurance. There are a few options for them such as reaching out to an appointed agent or a certified advisor, calling the customer service team directly, or going to an insurance company's website to read about the products for better understanding.
  3. Insurance can be an unnecessary expense to those who are on low wages and do not have strong financial stability.
  4. They most likely know about the risk of life’s unexpected turns like sickness, loss of income due to disablement, or worse, but choose to ignore it due to the “it-will-never-happen-to-me” mindset.
  5. Some may rely more on “informal insurance” such as strong family networks who are always there to help.
  6. They merely see insurance as an investment, rather than as a form of protection.

Bottom line…

Being able to stick to the perfect personal financial plan is as important as developing one.

Once you have finalized it, remember to review it every year especially when the time is close for you to renew a policy like home content insurance, life, and medical insurance policy, and make necessary adjustments according to your needs and financials.

Once you have laid the foundations, you can manage your finances with ease and live your life to the fullest.  So, start including your insurance policy expenses in your financial plan to secure your financial future.