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Life insurance and financial planning

Posted November 23rd, 2009 by Spike

Family Financial Planning is a process that starts by ascertaining a family’s financial goals and then developing

a plan for achieving the family’s goals. There are basically five areas of financial planning: insurance planning and risk management, wealth accumulation, tax planning, retirement planning and estate planning. Insurance planning and risk management is the foundation for a family’s finance. Only after you have a good insurance plan, can you build up your wealth. Otherwise, when something unexpected happens, your asset and your family’s life may be at great risk. Life insurance is one of the most complicated insurance products that is used for risk management.

Insurance planning is also referred to as risk management. Risk is the possibility that a source of danger turn into a loss. We face all kinds of risks every day, such as getting sick, or having a car accident. The impact from certain risks could be huge for an individual. The insurance companies therefore create various types of insurance products to transfer the individual risk to the insurance company by asking a relatively small amount of premium from the insured person.

Life insurance is a valued contract. When an insured person dies, the beneficiaries of his or her life insurance receive the face amount of the policy or some other benefit that depends on provisions within the insurance contract. The beneficiary can then use this money to replace some of the income the insured would have earned or to help pay off debts or other expenses.

The two types of life insurance are term and permanent life. The one that’s right for you depends on many factors, including your budget, the amount of coverage you need, and the length of time you’d like the coverage to last. Term life insurance provides protection for a limited period of time, such as 10, 15, 20, or 30 years, and pays a benefit if the insured dies during this period. Term policies often provide the most coverage for your premium dollar for set periods of time. Permanent policies can provide lifetime protection. They also have the potential for tax-deferred cash value accumulation.

Since there are many different types of term and permanent life policies, before you decide the right one for your family, you may need find out what are the options for you, and what are the pros and cons of various type of policies. Then you should choose the right life insurance products based on your financial need and your budgets.

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