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Why Is Insurance An Important Part Of A Financial Plan?

Why Is Insurance An Important Part Of A Financial Plan?

September 13, 2022

Why Is Insurance An Important Part Of A Financial Plan?

Like professional financial planning services, specific insurance policies can help you determine and protect the quality of your future life against all odds. Here is the importance of financial planning in the first place. Without a concrete financial plan, you'll be left at the mercy of life's unpredictable circumstances. 

But when you are ready to create one, you may forget why insurance is important in financial planning. However, knowing that some future life circumstances are inevitable, there is no better time to consider insurance than now. 

Based on the fact that there are different types of insurance policies and financial planning services, we'll look at the core dynamics to put you on the right track. 

What Is Insurance?

Insurance is a contractual arrangement that mitigates the risk of financial loss and protects against defined future events. Future eventualities in this context often include financial loss, loss of means of livelihood, or death. Bearing in mind that these kinds of potential future events are unpredictable, your best bet is to get maximum protection against them. 

That's the essence of buying into insurance policies. Most times, the contract is between an insurance service provider (insurer) and another party (the insured) which may be an individual or distinct legal entity. In some specific contexts, the insured is also known as the policyholder. 

Interestingly, some specific types of insurance are required by law, while others are optional. Moreover, the type you have often influenced how insurance services work. In this context, we'll focus mainly on its role in financial planning. 

Types of Insurance Services 

Life Insurance – Death is one of the inevitable events waiting for every living person on earth. When it happens, the quality of life on the part of your loved ones might be affected significantly, especially if you are the primary breadwinner. Life insurance helps cover the costs arising from the policyholder's death. Such costs may include things like burial expenditure and living expenses. 

Health Insurance – This type of insurance helps the policyholders maintain the desired quality of health before and after retirement. It covers the costs associated with things like monthly check-ups, treatment of illness, and sudden injuries. Under health, you may also get disability insurance that hedges against the loss of personal income due to injury. 

Auto Insurance – An auto insurance policy protects against all sorts of eventualities relating to the use of an automobile. In this specific context, you'll also find different classifications of auto insurance. Across different countries and states, automobile insurance is usually mandatory. 

Homeowners Insurance – Damage to the home is another unpredictable thing. It doesn't matter whether you are still working or retired. Incidents like wire fire and other natural disasters can cause significant damage to your home. Before such things happen, home insurance can provide you with great protection. 

Travel Insurance – Regardless of how detailed your travel plan might be, you can't predict everything that will happen along the journey. When you are traveling for studies, business or vacation, you may need travel insurance to cover some of the unpredictable costs that may arise against your perfect plans. 

The Importance of Life Insurance In Financial Planning 

It Provides Death Benefit To Your Family 

The average retirement age in the United States is around 63, while life expectancy is 78 years. However, a holistic financial plan should get you thinking beyond these numbers. The reason is that you'll die one day, and the life of your family members, especially dependents, will be affected. This points to the importance of life insurance in financial planning. 

Based on the awareness that death is inevitable, you can start now to take actions that will provide some benefits to your family members when it happens. And the interesting part is that you don't know how or when it will happen. Do you now see why it is important to include insurance in your financial plan? Remember, this goes beyond retirement planning

Tax-Free Plan For Your Children's Future Education 

Among other things, your children's future education is another reason to consider making an insurance policy a part of your overall financial plan. With disability insurance, your children's education will not be disrupted because your source of income is lost. 

In other words, the cost of financing their education in the future won't put you in significant financial hardship when you stop working. To make the best decision in this regard, you may consider engaging professional financial advisors that will put you on the right track. 

On the other hand, your demise might affect your children's future education. In this case, life insurance will give you and your family the desired quality of education, whether you are dead or alive. You just have to take your income numbers into the core financial plan. 

Protect Your Income Generating Assets 

It doesn't matter the type; many factors can threaten the stability of your income-generating assets. When you retire from active work, these assets will need even greater protection for different reasons. From rental income-generating homes to automobiles and business entities, you need the right insurance to protect your cash flow, especially during your retirement years

Without the appropriate forms of protection, sudden damage can put you and your family into overwhelming financial hardship.

On the other hand, getting the right insurance policy will help you cover the cost of replacing or repairing those properties that generate income for you, especially during retirement. When you are ready for detailed professional financial planning services, this is something you have to give serious consideration to. 

Even when you want to pass along some assets as part of your will, the right types of insurance can go a long way in protecting the long-term sustainability of those assets. 

Maintain Your Desired Quality of Lifestyle After Retirement 

Before you retire from active work, many economic variables are beyond your control. Rising healthcare costs and general inflation are just a few examples. Interestingly, there is a chance that your income will be reduced when you stop working unless you have a professionally detailed financial plan. Having the right health insurance policy and the means to cover related costs will help you maintain the desired quality of life after retirement. 

Perhaps, you don't want to depend on your children or family members for health expenses when you are no longer working and earning income. 

Here is why you need to include insurance in your financial planning process. 

Why Hire Diddel & Diddel Advisors For Financial Planning?

  • A third-party perspective
  • They are trained specialists
  • Leverage their professional experience 
  • Tap into their tax reduction strategies 
  • Maximize your investment returns 
  • Protect your assets against market fluctuations 
  • Long-term financial growth and stability 
  • Professional retirement planning guidance 
  • Help meet your savings and investment goals 


There are numerous reasons why insurance is important in financial planning. However, this post was not meant to be exhaustive. What we have done here is to help you understand the essence of insurance policies when creating a financial plan.

 Assuming this is something you have ignored for some time, now is the best time to start taking the right action. 

From health to automobile, home, life, and disability insurance, your financial plan can hardly be balanced without these things. Moreover, exploring the classification of insurance policies under the above core categories is something you should consider doing as well. 

The other thing worth noting is that when it comes to crunching complex numbers relating to financial management, trained and experienced professionals who do it daily often outperform. 

Remember, most of your future life circumstances are unpredictable, which doesn't mean you should do nothing about them. Now might be your best time to start planning and hedging against the common risks almost everyone faces. Above all else, death is inevitable. That's why you need insurance in your financial plan. Contact a Diddel & Diddel Financial Advisor.