The Role of Life Insurance in Your Financial Plan

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Insurance’s Role in Your Financial Plan

Insurance is one of life’s necessities and probably the least-understood financial product. Insurance reimburses people for covered losses in the event of an unfortunate occurrence such as an illness, accident, or death. At the same time, it can encourage prevention and safety measures, provide investment capital, lend money, and help to reduce anxiety for society at large.

As a mechanism against loss of income and a means of safeguarding assets, most Americans have insurance in one form or another. These coverage’s may include public coverage, such as disability insurance under Social Security, a health care policy from an employer, or personal insurance to protect property such as computers, homes, and cars.

Understanding life insurance retirement plans may save money in your pension and other investments and have capital in your home. But if you don’t know exactly what your life insurance policy covers or have only glanced at your employer-provided health and disability insurance policies, you’re neglecting an important aspect of your financial plan.

Until something happens, such as a car accident, an illness, or the death of a loved one, paying for insurance may seem like buying something you’ll never use. But even if you never submit a claim, insurance is an investment in your future, as important as pensions and personal investments. Indeed, many financial planners argue that you should have an adequate insurance safety net in place before considering investment strategies.

The function of insurance is to protect you against losses you can’t afford. This is done by transferring the risks of a person, business, or organization — the “insured” — to an insurance company, or “insurer.” The insurer then reimburses the insured for “covered” losses – i.e., those losses it pays for under the policy’s terms.

As the insurance consumer, you pay an amount of money, called a premium, to the insurer to transfer the risk. The insurer pools all its premiums into a large fund, and when a policyholder has a loss, the insurer draws funds from the pool to pay for the loss.

Life is full of unexpected events that can create large financial losses. For example, whenever you drive, it is possible that you may have a costly accident. Risks affect you by causing worry about potential loss and how to deal with the consequences. Insurance reduces anxiety over a possible loss and absorbs the financial brunt of its consequences.

However, while insurance coverage is essential, how much and what type of insurance people need differ with each individual. You must decide how much risk you’re willing to tolerate without insurance. For example, benefits for disability policies typically begin after a waiting period of one to six months. Therefore, you should ensure that you have some form of coverage or financial resources before the policy period begins.

Where to Get Insurance

Since insurance can be expensive, it makes sense to get more than one price quote for coverage. There are several companies selling any one type of insurance, each with its own price structures, coverage, and policy exclusions. To help consumers choose among the various types of coverages, companies train sales representatives in the technical points of their insurance products. Many representatives work for just one insurance company. There are also brokers and independent insurance professionals — self-employed business people who sell insurance on commission for several insurers — who claim they can comparison shop to get the best coverages for consumers. Banks also sell insurance in certain states.

Insurance can also be sold without an insurance professional by companies called direct writers of insurance. At QuickQuote, our insurance is sold by our counselors over the phone or on the Website, quickquote.com. They are not commissioned sales agents. You can call the QuickQuote Insurance Planning and Service Center at 1-877-432-4440.

When buying insurance, the first rule is to select an insurance company before choosing an insurance professional. Whether or not an insurer is a direct writer of insurance or an independent agency company is less important than its financial stability, coverage price, and service. To determine a company’s willingness to pay claims, ask a policyholder who has filed several claims. Another good source of information is your state insurance department, which can tell you the percentage of an insurer’s claims that are administered without complaints. Obviously, the more claims an insurer has handled with no complaints, the more likely that the company will provide you with good service. To determine an insurer’s financial solvency, go to quickquote.com and click on “Resource Center”.

A.M. Best Company, Standard & Poor’s Insurance Rating Services, Moody’s Investors Service, and Duff & Phelps Credit Rating Co. are major rating companies that analyze the financial strength of insurance companies. Get ratings on insurers from each firm and compare them.

Filing an Insurance Claim

Find out the required documents, the time your insurer needs to process the claim, and whether you’re covered for the entire loss. Make copies of all documents and file them in a safe place. Also, be sure to keep a record of all your expenses; your insurance company may reimburse you for them if they are considered to be part of the claim.

Finally, stay on top of the situation. Keep your insurer informed of the progress of its claims-paying mechanism. If the insurer won’t budge, contact your state insurance department to assist you on how to file a complaint against a life insurance company.

Case Studies: Life Insurance and Financial Planning: How They Work Together

Case Study 1: Integrating Life Insurance Into a Comprehensive Financial Plan

Amy, a young professional, worked with a financial planner to develop a comprehensive financial plan. The financial planner assessed Amy’s financial goals, current situation, and future obligations.

They recommended a term life insurance policy that aligned with Amy’s needs and budget, ensuring that her plan covered income replacement and debt repayment.

Case Study 2: Utilizing Life Insurance for Investment and Savings

John and Sarah, a married couple, wanted to incorporate life insurance as an investment and savings tool in their financial plan. They opted for a whole life insurance policy that offered a cash value component. This allowed them to accumulate savings within the policy over time, which could grow tax-deferred.

The cash value could be accessed during their lifetime to supplement their retirement savings or meet other financial needs. While they understood that life insurance primarily served as a risk management tool, they appreciated the added investment features it provided.

Case Study 3: Periodic Policy Reviews for Evolving Needs

David, a middle-aged individual, recognized the importance of reviewing his life insurance policies periodically as part of his financial planning. He regularly consulted with a financial planner to reassess his coverage and policy benefits. David made adjustments to his policies to ensure they aligned with his changing circumstances.

For instance, when he had children, he increased his coverage amount to provide sufficient financial protection for his growing family. Regular policy reviews allowed David to keep his life insurance in line with his evolving financial goals.

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