Taking charge of all your finances is about financial planning and these include managing your income, expense, asset & liability and your financial goal. This is a step towards creating financial portfolio management where the investment is made in different streams for meeting personal goals. The inflation expenses and increased cost of living have called for the significance of insurance requirements.
When you receive a monthly salary the first step is to allocate towards your basics of life and then plan for other expenses. Allocating your money towards insurance is not an expense but it is a way of creating security for the future. To ensure the security of your future and your family you need to give importance to insurance in your financial planning. Insurance is like security which will protect you and your family and ensure safety for your dependents.
Importance of Insurance in Financial Planning
Insurance protects and safeguards your finances. Below listed are some reasons which make insurance a part of a financial portfolio.
- Security
- Risk Cover
- Different plans
- Financial strength
- Peace of mind
1. Security
Insurance provides financial protection and it provides compensation for the loss that you suffered due to any misfortune. If there is any kind of emergency then the insurance plan that you have purchased will provide you the security. The insurance company will be responsible for providing financial support. It will assist in providing the finance and creating a corpus for your financial needs. The planned corpus amount is secured and it should be managed carefully.
2. Risk Cover
Insurance can be considered as a risk management tool that will help in preparing you for financial loss. The policyholder will pay the premium to the insurance company and the insurance company will provide risk cover against the death of the policyholder. The claim amount settlement will be provided to the beneficiary account. The claim settlement will be done by the beneficiary and the amount will be transferred to the beneficiary account.
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3. Different plans
Insurance companies will cater to the different needs of the policyholders based on their requirements. There are many different types of insurance plans that insurance companies offer to the public. Based on the risk coverage and the financial benefits the insurance plans are designed and based on the requirement an individual can buy the policy and become a policyholder.
There are different plans like money savings plans, accidental cover plans, health insurance plans, motor insurance plans, travel insurance and others. Each segment of insurance provides protection against its coverage. Based on the requirements an individual can have any number of categories of insurance plans.
It all depends on the premium payment capacity and the individual. However, having double insurance and multiple insurances under the same category may have certain restrictions. Check with the policy provider before purchasing the insurance.
4. Financial strength
Insurance will provide financial strength as it will protect against uncertainties of life. When you are purchasing the insurance you should select the right investment plan according to your requirements. A universal plan is not applicable to every individual and all do not have the same requirements and financial ability. Having the right insurance policy is a way to get protection against losses in the event of mishappening in life.
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5. Peace of Mind
Insurance plans will give you peace of mind as you get financial security during an emergency. It helps in difficult times and ensures that your debts or your loved ones will be protected financially during the event of death. The policyholder should plan perfectly to get the right benefits. Ask yourself about what is your requirement from insurance and how much is the requirement based on these questions you can plan to purchase the insurance policy.
Five steps in financial planning
The following are five steps in the financial planning pyramid which are categorized according to the Needs Hierarchy theory.
1. Money management– Focus on your daily expenses, reduce your loans and set up stability with your cash flow.
2. Build savings– Create safety with finance to manage emergencies in life. Growth in savings and having good insurance cover in health and life will provide protection.
3. Wealth accumulation- Focus on growth in investments, plan for retirement funds, use tax benefits and accumulate wealth
4. Preserve wealth- Earning wealth is important and also preserving is more important. Maximize your earnings, convert retirement corpus into income and enjoy financial independence.
5. Leave a legacy- Focus on enjoying financial independence, plan for estate building, a succession of property and wealth accumulation.
Conclusion
Insurance is one of the most important financial steps as it will provide financial support during medical emergencies, managing hospitalization expenses and other emergencies. In case of mishappening it provides financial protection to the dependants. Overall having insurance is a very significant step when you are making your financial plans.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
