Understanding Of Insurance Management in Personal Finance
Life is full of risks. You can try to avoid them or reduce their likelihood and consequences, but you cannot eliminate them. You can, however, pay someone to share them. That is the idea behind insurance.
A key component of any financial plan should be planning for unexpected events that may prevent you from meeting your future financial goals. This is known as risk management planning. Each year many people face financial disaster through premature death, disability or a prolonged illness. As part of your financial plan we review your current insurance coverage for potential shortfalls. Where appropriate we make specific insurance recommendations to better protect you and your loved ones from financial catastrophe.
Insurance can be purchased for your property and your home, your health, your employment, and your life. In each case, you weigh the cost of the consequence of a risk that may never actually happen against the cost of insuring against it. Deciding what and how to insure is really a process of deciding what the costs of loss would be and how willing you are to pay to get rid of those risks.
The costs of insurance can also be lowered through risk avoidance or reduction strategies. Risk avoidance is accomplished by completely avoiding the risk through such measures as choosing not to smoke or avoiding an activity that might cause injury. Risk reduction reduces the risk of injury, loss, or illness. For example, installing an alarm system in your home may reduce homeowner’s insurance premiums because that reduces the risk of theft. Of course, installing an alarm system has a cost too. Risk assumption is when one assumes responsibility for a loss or injury instead of pursuing insurance.
Table Of Content
- The Complete Understanding Of Insurance Management in Personal Finance
- Why Insurance Management is Important In Personal Finance?
- How To Manage Risk In Insurance?
- Key Features Of Insurance Management In Personal Finance
- Benefits Of Insurance Management In Personal Finance.
Why Insurance Management is Important In Personal Finance?
For instance, assume that you’ve worked out an exceptionally good financial plan including a careful selection of low risk and high return savings and investment options. Your ultimate end goal is to purchase a dream home for your family and to save up for retirement. If something were to happen to you, such as an accident, a disability, or even death, it can throw your entire plan up for a toss. In addition to that, your family would also end up losing their primary source of income, thereby putting them under great financial distress.
An insurance plan can avoid all of this worry. It can keep you and your family protected from such situations by acting as a major source of income during such trying times.
let’s take a look at some of the reasons why you should include this product in your plan right away.........
- Insurance can help you meet debt obligations: Even when you lose the ability to generate income due to an adverse event, your debt burden still remains intact. Without an income source, it might become tough for you to pay off your obligations on time. Insurance comes to your aid under such a situation. The payout you receive from the insurer can be used to settle your debt obligations without causing any significant financial distress to you or your family.
- It helps with your retirement planning: By purchasing the best Life Insurance plan to meet your long-term goals, you can even enjoy the benefits of retirement planning. In plans like endowment policies and ULIPs, you get to enjoy maturity benefits that can serve as a reliable corpus to start your retirement phase. You can even opt for pension plans that give you the option to receive lump sum payouts or periodic payments.
- Health Insurance covers medical costs: Medical expenses can become overwhelming very quickly, especially given the rising costs of healthcare. With a Health Insurance plan, you can meet these expenses without any significant financial stress. Medical insurance generally covers various costs like hospitalization expenses, home care expenses, day care procedures and ambulance charges.
- Insurance can also act as an investment option: While insurance plans are designed to offer you protection against losses and other untoward incidents, they can also act as an investment option. Unit Linked Insurance Plans (ULIPs) in addition to providing a protective cover also gives you handsome returns on your investment. Insurance plans with endowment benefits can also be a good option for investors looking to get something out of their investment, while staying indemnified from losses.
- Financial security: By compensating for the loss that you suffer in an emergency, insurance policies provide financial security. You are secured in the knowledge that if an emergency strikes, the insurance policy would shoulder the loss. This helps you plan your finances and accumulate a corpus for your goals. It also ensures that the planned corpus is secured and is not used in emergencies.
- Conclusion: Knowing how relevant insurance is, it’s best to purchase life and health insurance plans as early as you can. This is because the premiums for these kinds of insurance generally increase as you age. Aside from these types of insurance, it’s also a good idea to invest in motor insurance and home insurance if you own a vehicle or a house.
How To Manage Risk In Insurance?
Increasingly, insurers are facing a variety of strategic risks emerging threats that could undermine assumptions at the core of a company’s value proposition and foundational business model. Innovative technologies and new competitive paradigms are impacting nearly every area of business rapidly and radically. Armed with a strategic risk management framework, insurers can proactively navigate these rough waters as the tides change.
Unlike most other industries, risk management is already a core function of insurance companies and many carriers have already adopted enterprise risk management . However, these programs are not traditionally designed to address strategic risks that are disruptive to an insurer’s value proposition or business model, and which are generally difficult to foresee, measure, and minimize.
To more effectively cope with game changing technologies and new competition from nontraditional sources, insurers should consider adopting strategic risk management as a holistic framework to not only help them manage the potential downside of disruptive risks, but also perhaps achieve faster growth by better preparing them to capitalize on the resulting opportunities.
When buying insurance, opting for optimal coverage is important. Here are some simple formulae to consider
- Term insurance
Opt for a sum assured of at least 10 to 12 times your annual income. For instance, if your annual income is 25 lakh $, you need coverage of at least 2.5 $ to 3 crore $.
- Health insurance
Opt for a sum insured which is equal to 50% of your annual income and the aggregated hospital bills over the last three years.
So, if your annual income is 25 lakh $ and you have suffered hospitalization over the past three years the bill of which amounted to 2.5 lakh $, your sum insured should be at least 15 lakh $.
Remember, these are basic calculations that do not take into consideration other variables. Ideally, the coverage should depend on your financial needs that can be ascertained from different factors. Some such factors are as follows:
- Your lifestyle expenses
- The number of dependents that you have
- Existing assets and liabilities
- Your financial responsibilities or goals
So, when buying insurance, do not make a hasty decision. Assess how much coverage you need and then pick the right plan.