Insurance plays an important role in any sound personal financial plan. There are different types of insurance plans which protects you and your loved ones against any unforeseen and unplanned costs like accidents, illness, disability, and death.

Without the protective cover of insurance, such costs/ loss can make one’s personal finances haywire. Therefore, staying prepared would ensure that you could still accomplish your goals even after encountering a crisis situation.

The insurance decisions you make should be based on your family size, age, dependents and income. Life insurance is a virtual necessity if you are married and have children. Moreover, other types of insurance you should consider includes auto, homeowners, health and disability insurance.

Life insurance:

Life insurance makes sure that your dependents are financially secured incase of any unfortunate event. Under life insurance, the policyholder’s family is financially compensated for the sum insured in case the policyholder expires during the term of the policy. 

Life Insurance products consist of pure ‘Term Policies’ where only mortality risk is covered while in ‘Hybrid Policies’ like Money-Back policies & Endowment policies wherein mortality risk protection as well as financial savings are bundled together. Hybrid life insurance policies periodically return the savings component + accrued bonus amount to the policy holder during his life time.

Health insurance:

One can buy a generic health insurance policy as well as policies for specific diseases. The premium paid towards a health insurance policy usually covers costs of treatment, hospitalization and medical tests. As large and unforeseen medical expenses are taken care by health insurance, one can proceed with their financial plan and investment plans without any disruption.

Car insurance:

Car insurance policies compensate for the damages to car during accidents or natural calamities like floods and earthquakes. It also covers third-party liability where you have to pay damages to other vehicle owners for accidents caused.

Homeowner’s insurance:

Homeowners insurance is another type of insurance to include in your financial plan. It helps to protect from expensive costs if a disaster damages home. In other words, it can help for covering loss or damage caused to your home due to accidents like fire or natural calamities like floods and earthquakes. Typical homeowners insurance policies cover 50% to 75% of your home’s value.

Insurance is a necessary component of your financial plan. An insurance policy would help to preserve your emergency fund in case of emergencies.

A personal finance plan consists of components like budgeted savings, investments plan and risk management. When the risks are too big, you should take help of insurance to cover such risks.