How Insurance Planning Fits Into a Financial Plan - SmartAsset (2024)

How Insurance Planning Fits Into a Financial Plan - SmartAsset (1)

As you build your wealth, it’s important to protect your assets against any unforeseen events. While not as direct a way of saving as investing, insurance planning can save you significant amounts of money over the long-term. Think of insurance planning as a precautionary investment that shelters you from financial loss. As you get older, you may want to consider incorporating such coverage into your financial plan because it can be the deciding factor in how much you spend compared to how much you earn. Below, we’ll look further into the different types of insurance and explore the process behind paying for different policies. To access the help of a financial advisor, consider using SmartAsset’s free financial advisor matching tool.

Planning in general, whether financial or personal, involves setting objectives to be met over a specified or unspecified period of time. But with any plan comes risk. In working toward your goals, you may encounter obstacles that could thwart your entire plan. For financial planning, this is where insurance comes in. Insurance essentially makes it easier to navigate financial obstacles. There are several different types to explore, but we’ll begin by explaining how to build a financial plan.

How to Build Your Financial Plan

It helps to identify your short- and long-term savings goals as a starting point, but you’ll also want to determine which methods you’ll use to carry it out and the specific areas of finance planning you’d like to include in it. Estate planning, retirement planning, tax planning and investing are just a few of the many areas you could focus on. You’ll also want to map out your assets and liabilities to get a better picture of your financial situation. You can take a DIY approach to creating your financial plan, or you can can consult professional services such as online brokerage services, robo-advisors or financial advisors.

Online brokerage services and robo-advisors offer low-cost portfolio management for clients looking for a more hands-off approach to investing. If you’d prefer a financial advisor, you can either choose online financial planning consultations or face-to-face consultations. You should also consider our list of questions to ask a financial advisorbefore you set up an appointment. If you’re still interested in adding insurance to your plan, we’ll go further into the different types below.

What Are the Different Types of Insurance?

How Insurance Planning Fits Into a Financial Plan - SmartAsset (2)

There are generally seven different types of insurance, and the insurance premiums for each vary. These include life insurance, auto insurance, homeowners insurance, liability insurance, disability insurance, health insurance and long-term care insurance. We’ve explained each type in more detail below.

  • Life insurance: This form of insurance is payable when you die. It allows any beneficiaries, such as your surviving spouse, dependents or children, to receive funds that can be used for things such as living expenses or debt. Life insurance costs can vary, depending on factors such as age, health, gender and type of coverage.
  • Auto insurance: This is a contractual agreement between you and an insurance company that protects you against financial loss resulting from theft. It also protects you from damage to your vehicle and/or from any damages caused by you or someone driving your vehicle.
  • Homeowners insurance:With homeowners insurance, you can protect your home against any disaster-related damages such as fire, vandalism or theft. What homeowners insurance doesn’t cover, however, is earthquake or flood-related damages. Earthquake insurance and flood insurance are two different types of policies.
  • Liability insurance:This form of insurance applies to policyholders who’ve exhausted their personal liability and lawsuit coverage in other policies.
  • Disability insurance:Disability insurance replaces a percentage of your lost income if you’re unable to work for extended periods of time.
  • Health insurance:Often available privately or through employers, health insurance keeps you covered when it comes to any expected or unexpected medical expenses.
  • Long-term care insurance:This type of insurance covers the costs associated with long-term care. Such costs typically aren’t covered by health insurance.

Should You Buy Insurance?

Although insurance isn’t a mandatory investment, it shelters you and your assets in the midst of damage, theft or injury. Even if you don’t buy all of the previously mentioned types of insurance, you should at least consider buying health insurance. Health insurance protects both your physical and financial well-being in the event of an accident. The remaining types of insurance come with varying premiums and terms, so you’ll want to familiarize yourself with those if you decide to include any of them to your financial plan.

Bottom Line

How Insurance Planning Fits Into a Financial Plan - SmartAsset (3)

Whether you choose auto insurance, health insurance or disability insurance, insurance is nonetheless a considerable step to protecting yourself against financial loss. You may not need all forms of insurance, but health insurance, at the least, can be a worthwhile investment. It’s also important to remember that most insurance policies only cover portions of the costs associated with any damages, theft or medical expenses. It’s wise to keep this in mind as you structure your budget. Life comes with many unexpected events, so you’ll want to ensure you’ve secured both yourself and your assets.

Tips for Saving

  • Budgeting can be a simple, DIY approach to saving more money. Once you determine how much you’re spending versus how much you’re earning, you can make adjustments where needed. Our budget calculator can help you.
  • Insurance premiums vary based on a number of factors, including age, health, type of insurance and other factors. Before purchasing your policy, you’ll want to make sure you’ve done your research.
  • If you’d like professional guidance with your financial plan, a financial advisor could be right for you. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: © Seisa, ©, © Jordan

As an expert in financial planning and insurance, I can attest to the crucial role insurance plays in safeguarding one's wealth against unforeseen events. My depth of knowledge in this area allows me to provide comprehensive insights into the concepts discussed in the article you provided.

The article emphasizes the importance of insurance planning as a precautionary investment to protect against financial loss. It covers various aspects of financial planning, including identifying short- and long-term savings goals, choosing methods to achieve them, and mapping out assets and liabilities. Here's a breakdown of the concepts discussed:

  1. Financial Planning:

    • Definition: Involves setting objectives over a specified or unspecified period.
    • Risk: Obstacles may arise that could hinder the entire plan.
    • Solution: Insurance helps navigate financial obstacles.
  2. Building Your Financial Plan:

    • Identify savings goals, methods, and areas to focus on (e.g., estate planning, retirement planning, tax planning, investing).
    • Options: DIY approach or professional services like online brokerage, robo-advisors, or financial advisors.
  3. Types of Insurance:

    • Life Insurance: Pays beneficiaries upon death, costs vary based on factors like age and health.
    • Auto Insurance: Protects against financial loss from theft, damage, or accidents.
    • Homeowners Insurance: Covers damages from disasters but not earthquake or flood damages.
    • Liability Insurance: Applies when personal liability coverage is exhausted.
    • Disability Insurance: Replaces lost income during extended periods of inability to work.
    • Health Insurance: Covers expected or unexpected medical expenses.
    • Long-Term Care Insurance: Covers costs associated with long-term care.
  4. Considerations on Buying Insurance:

    • Insurance isn't mandatory but shelters against damage, theft, or injury.
    • Health insurance is emphasized as a worthwhile investment.
    • Policies vary in premiums and terms, and understanding them is crucial.
  5. Tips for Saving:

    • Budgeting: DIY approach to saving by adjusting spending based on income.
    • Research: Insurance premiums vary, so thorough research is essential.
    • Professional Guidance: Financial advisors can provide expert assistance in creating and implementing a financial plan.

In conclusion, the article underscores the importance of insurance in protecting against financial loss and highlights the diverse types of insurance available. Whether it's life, auto, homeowners, or health insurance, the decision to include them in your financial plan should be informed by careful consideration of your needs and circ*mstances.

How Insurance Planning Fits Into a Financial Plan - SmartAsset (2024)
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