As anyone who is a planner knows, things don’t always work out quite how you think they will. Successful plans are fluid and flexible, considering every possible scenario and how to prevent issues or deal with them efficiently.
Financial planning is no different. If you’ve ever spoken with a financial advisor, you’ll know that insurance and planning go hand in hand.
Although the future is important, people tend to live happier and more fulfilled lives when they’re able to live in the present. That’s why having a financial plan to safeguard your future is so important. Spending some time creating (and occasionally revising) your plan now will save you from plenty of preventable worry and stress in the long term.
Why & How to Manage Risk in Your Financial Plan
There are several components of a financial plan, one of which is risk management. Insurance makes up a large portion of the risk management section because it provides protection for a variety of situations that might arise in the future illness, disability, and eventually death.
Although no one likes to think about the potentially negative “what if’s,” it’s crucial to consider these situations carefully, especially when you have dependents. Many people think of insurance as a contingency plan, but you can also think about it as your trusted representative; insurance is there to step in and take care of your family just in case you can’t for any reason.
Not everyone will need all of these policies as part of their financial plan. Your financial plan will take your specific circumstances into account, including your age, health, employment, living situation, gender and financial situation. Your budget will also be a determining factor. As these situations change, the insurance portion of your financial plan may also shift to meet new needs.
Of course, the first type of insurance to consider in your financial plan is life insurance. Life insurance is important if you have people who depend on you financially, including spouses and/or children. Before we start, we’ll take a look at whether you have group or employee life insurance through your workplace, and if so, we can analyze and supplement that policy.
Term Life Insurance vs. Whole Life Insurance
Until they visit their insurance broker or financial planner, most people don’t realize there are different options for life insurance. Term life insurance covers you for a specific period of time, such as during a period where you’re paying off debts or mortgages, or raising children. Meanwhile, whole life insurance doesn’t expire and can be most helpful when there are transferable assets, wealth and estates.
Another difference between these types of insurance is the cost structure. For term life insurance, you’ll typically see rising scales of cost as you age, while whole life insurance typically stays at a set rate. There are also many other payment options and arrangements for whole life insurance.
Critical Illness Insurance
Illness can quickly break down the savings of a previously financially stable family. Between the loss of income and extra expenses, these events take a toll that impacts both health and wealth.
Critical illness insurance protects you and your family by covering you for up to 25 critical illnesses and health conditions, ranging from cancer to heart disease. Anyone from age 0 to 100 can be covered, and there are plenty of long and short-term options to choose from.
Disability can strike unexpectedly at any time, leaving you unable to work. When you’re focused on recovering or getting treatment, the last thing you need is extra financial strain.
Disability insurance is designed to provide you with income while you can’t work due to an injury, illness or debilitating condition. Your insurance broker and financial planner can work together to determine what you would need to replace your income based on your savings, debt, expenses and current income.
Other Insurance Considerations
Another aspect of your financial plan to consider is whether and how your policies would transfer to your benefactors. For example, will your auto policy cover your spouse if you were to pass away? If so, would they need to call and inform the agency? Fill out paperwork? Pay an extra fee?
The first step is asking your financial planner and insurance broker about specific situations to learn which policies would transfer over (or pay out). Most types of insurance will be maintained after the policy holder’s death, but if that person was responsible for making payments and those payments suddenly stopped, the policy could be cancelled.
Keeping records of your insurance policies on-hand in a place your beneficiaries can access is a great first step. Having a frank discussion with your spouse, beneficiary or executor (with or without your financial planner present) can help everyone through what would already be stressful and exhausting circumstances. And finally, you should always be able to lean on your financial planner and insurance broker in challenging times. Rely on the experts you’ve built around your finances, and have all of their contact information on hand in an easily accessible place.
Design a Plan with a Team of Financial Planners & Insurance Specialists
Insurance and financial planning go hand in hand, which is why our team at Cornerstone includes expert financial planners in Edmonton. If you’ve recently done any of the following, it’s a great time to build a team around your finances:
- Bought a house
- Had a child
- Started investing
- Taken on debt
- Received an inheritance
- Started a business
Get in touch with our team to book a review of your current plan or to create one from scratch. We’re here to help you plan for the future while living for the here and now!