And What About Insurance

More often than not, insurance is discussed as a distinct entity from one’s financial plan. And yet, to be most effective, it must be seen in context of one’s life. It should not be seen either as a standalone or simply, a product. Although it is, unfortunately, often sold that way.

The most effective application of insurance is as a protective strategy geared to mitigate specific risks in an individual’s financial life. When you possess something valuable and you do not have the means to pay if it gets lost or damaged, you need insurance. If a catastrophic event like death, illness or disability means that you can no longer meet your financial obligations, you need insurance. And if your estate is large enough that tax management for heirs is an issue, you also need insurance.

In the financial planning process, the first step is to determine your cash flow and net worth. This gives you a good idea of where you are starting from. The next step is to assess what kinds of cash reserves (savings that you can get your hands on in under 24 hours) may be needed in the event of an emergency and what the gap is between your own assets and what might be needed. In the case of life insurance for example, instead of formulaic equations, a practical approach is to look at your own life. Imagine for instance that you died this afternoon. What would your loved ones need immediately? In the next weeks and for the following decade? Whatever you don’t have saved may need to be made up through an insurance policy.

Having a base of education about insurance, what it is and what it does, allows you to make empowered decisions. Jacqueline Knoblauch was a guest speaker at Sophia Financial Group recently and shared her insights and wisdom with us. Have a listen. And then if you need further information, don’t hesitate to reach out. Insurance is a key component of a solid, successful financial plan.