Why Insurance Is a Key Part of Financial Planning
When building a financial plan, most people focus on growing their wealth—investments, savings, and retirement accounts. However, one of the most critical aspects of protecting your financial future often goes overlooked: insurance. Insurance acts as the safety net that shields you and your loved ones from life’s unexpected challenges. Whether it’s a natural disaster, medical emergency, or untimely death, having the right insurance ensures that your financial goals stay on track, no matter what.
The recent Palisades fires in Southern California were a tragic reminder of the importance of insurance. Families who lost their homes faced devastating losses, but for those who had the right insurance, their policies offered a path to recovery. However, even with home insurance, details like riders—additional coverage for high-value items—can make all the difference.
Why Listen to Me?
As a CERTIFIED FINANCIAL PLANNER™ professional, I’ve worked with individuals and families to create holistic financial plans that include robust insurance strategies. In my experience, insurance is not just about peace of mind—it’s a foundational piece of financial planning that protects everything you’ve worked so hard to build.
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Key Takeaways
• Insurance protects your financial plan from unexpected events like natural disasters, accidents, or medical emergencies.
• Understanding different types of insurance—life, home, auto, health, and disability—is essential.
• Riders provide additional coverage for unique needs, such as expensive jewelry or collectibles.
What Is Insurance, and Why Is It Important?
Insurance is a contract between you and an insurer, where you pay premiums in exchange for financial protection against specific risks. In my experience, insurance acts as a financial shield, ensuring that an unexpected event doesn’t derail your financial goals.
Types of Insurance to Consider
1. Life Insurance: Provides financial support to your loved ones in the event of your death.
2. Health Insurance: Covers medical expenses, which can be a significant financial burden.
3. Home Insurance: Protects your home and belongings against damage or loss.
4. Auto Insurance: Covers damages or liabilities related to car accidents.
5. Disability Insurance: Replaces a portion of your income if you’re unable to work due to illness or injury.
The Role of Riders in Insurance
Riders are additional provisions or policies that enhance your coverage. They are particularly valuable for people with unique or high-value needs.
Examples of Common Riders
• Personal Property Riders: Covers high-value items like jewelry, art, or collectibles.
• Natural Disaster Riders: Adds coverage for events like floods or earthquakes, which are not always included in standard policies.
Real-Life Example
During the Palisades fires, families with home insurance could rebuild their homes. However, those with riders that covered expensive items like antiques or jewelry were able to recover much more comprehensively.
How to Choose the Right Insurance
1. Assess Your Risks
- In my experience, understanding your unique risks is the first step. For example, if you live in an area prone to natural disasters, additional coverage like flood or wildfire insurance is critical.
2. Evaluate Your Assets
- Your assets, from your home to your savings, determine the type and amount of coverage you need.
3. Consider Your Family’s Needs
- If you have dependents, life insurance is essential to provide for them in your absence.
4. Review Policies Annually
- As life changes—new purchases, a growing family, or changes in income—your insurance needs may evolve.
The Costs and Benefits of Insurance
Cost
Insurance premiums vary based on factors like age, location, and the type of coverage. While premiums may feel like an extra expense, in my experience, the financial protection they offer far outweighs the cost.
Benefits
• Financial Security: Protects against major financial losses.
• Peace of Mind: Knowing your family is covered in an emergency.
• Asset Protection: Ensures your investments and savings aren’t wiped out by unexpected events.
Steps After Someone Passes: Closing Out an Estate
When someone passes away, their estate must go through a process to settle debts, distribute assets, and finalize accounts. This process can be overwhelming, but the right insurance policies can ease the financial burden.
Steps to Close an Estate
1. Locate Important Documents: Gather the will, insurance policies, and financial statements.
2. Notify Insurers and Financial Institutions: Inform them of the death to initiate claims and close accounts.
3. Pay Final Expenses: Use life insurance proceeds or other assets to cover funeral costs and debts.
4. Distribute Assets: Follow the will or trust instructions to allocate assets to beneficiaries.
In my experience, having life insurance and a clear estate plan significantly simplifies this process for surviving family members.
FAQs About Insurance
1. Do I Need Riders for My Insurance?
- Riders are essential if you own high-value items or face specific risks, such as living in a flood-prone area.
2. How Much Life Insurance Do I Need?
- A general rule is to have coverage equal to 10–15 times your annual income, but your exact needs depend on your family’s expenses and goals.
3. Does Home Insurance Cover All Natural Disasters?
- No, standard policies often exclude floods and earthquakes, so additional riders or policies may be necessary.
Conclusion
Insurance is the foundation of a strong financial plan. Whether it’s protecting your home, income, or family’s future, having the right coverage ensures you’re prepared for life’s uncertainties. By understanding your risks, evaluating your needs, and considering additional riders, you can build a comprehensive insurance strategy that offers true peace of mind.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.