The Role of Insurance in Your Financial Plan

A critical part of financial planning that is often overlooked is insurance. Having various insurance policies will provide different benefits to your financial plan, ranging from protection to tax breaks. In fact, insurance is a component of most financial plans, and some financial professionals are licensed to sell it themselves. Read on to learn more about the role insurance plays in financial planning and what policies you might consider. 

Risk Coverage 

All insurance policies are designed to mitigate risks. They help offset the potential financial loss you may experience due to a foreseen event. From death to hospitalization to a house damaged in an earthquake, insurance will help to absorb some of the financial burdens.1 

Tax Benefits 

Insurance policies also provide tax benefits for the holder as well. Money paid toward life insurance premiums will be able to be deducted under Section 80C of the tax code. The premiums you pay for your health insurance may also be deducted from Section 80D of the tax law. Additionally, any death benefit from a life insurance policy will be tax-free, so your loved ones won't be saddled with an additional tax burden.2 

Insurance Policies You Should Have in Your Portfolio 

While there are insurance plans to cover everything from your jewelry to your long-term care, there are a few types of policies that you will want to have in your financial portfolio. 

• Life Insurance: A term life insurance policy will provide a death benefit in the event of premature death. These policies are crucial to your financial planning as they will provide needed funds should the family's provider pass away and the family faces a significant financial loss. 

• Home Insurance: One of your most significant assets is your home, and the sudden loss of it would likely cause significant financial hardship. Home insurance may help repair your home in the event of major and costly damage and replace it in the event of a total loss. 

• Health Insurance: Medical bills are one of the leading causes of debt among those without coverage and may add up quickly enough to eat away at your savings. Having a health insurance plan that covers at least major medical expenses will reduce the risk of depleting your savings to take care of health concerns. 

• Auto Insurance: Vehicle insurance is a must and, in most states, a requirement to legally drive a vehicle. This type of insurance may help you repair your car if it becomes damaged in an accident, but even more importantly, it may cover medical costs for other drivers and passengers if you were found to be at fault for the accident.1 

Having proper insurance coverage is an essential part of life and your financial future. Not sure what coverage and how much you will need? Talk with a financial professional today to determine what policies will help complete your financial portfolio.