Insurance is a risk management tool that aims to protect its owners from financial loss due to unforeseen incidents or occurrences. There are different types of insurance policies or products categorized into two categories: general or non-life insurance and life insurance.
The foundation of a sound and solid financial portfolio rests on adequate insurance coverage. One cannot meet his or her financial goals and objectives with savings and investments alone. Remember that insurance is a risk management tool that protects the income, investments, and accumulated wealth of its owners and their beneficiaries.
It is not enough to have one. Each individual seeking to accumulate and grow their wealth through occupations, savings, and investments should have several insurance policies relevant to their socioeconomic status, situation, and financial goals and objectives as part of their risk management and wealth preservation strategy.
Protecting Your Income, Investments, and Wealth through Insurance: Must-Have Insurance Policies for Wealth Preservation
1. General Insurance and Property Insurance
The purpose of general insurance is to protect policyholders from possible financial losses that might come from damages to their assets. This category of insurance is also called property and casualty insurance in Canada and the United States while in most parts of Europe and Asia, it is called non-life insurance.
Property insurance is a subset of general insurance that protects against most risks to properties. Most individuals are advised to get some of the most common property insurance products in the market because of the inevitability of property ownership. Take note of the following insurance policies or products:
• Vehicle Insurance: Provides financial protection from costs incurred from damages to road vehicles such as motorcycles, cars, and trucks. The insurer shoulders the costs associated with unforeseen incidents such as road accidents and natural disasters. The coverage varies across each insurer and depends on the contract.
This insurance can also protect policyholders from financial liabilities arising from that could also arise from incidents involving vehicles. Other vehicle insurance products have features similar to a life insurance policy that compensate vehicle owners for injuries arising from traffic incidents.
• Home Insurance: Individuals who own real estate properties are also advised to get home insurance policies that provide protection from financial loss arising from unforeseen incidents such as natural and human-made disasters. Other home insurance products have coverage for financial losses incurred from fire and theft.
Home insurance policies in the United States and Canada include property and liability coverages. Note that liability coverage protects the policyholder from the costs arising from injuries to other people caused by the homeowner or members of his or her family. Some products include damage caused by household pets.
• Specialized Insurance: Some general insurance products might be included as features of property insurance products while others are standalone insurance products. An example is fire insurance which insures properties such as real estate, equipment or machinery, and other physical assets against fire.
Other examples of specialized insurance are disaster-specific insurance products such as flood insurance and earthquake insurance. Individuals with properties situation in disaster-prone areas are encouraged to avail these general insurance products for maximum coverage and better risk management.
2. Health Insurance and Life Insurance
Both health insurance and life insurance products are also must-have tools for individuals seeking to build a solid personal financial portfolio. These products protect an individual and his or her family members from financial losses incurred from incidents that can affect his or her capacity to generate income and sustain his or her wealth.
The concept behind both products is simple: a human being is an income-producing and wealth-generating asset, as well as an entity at high risk of incurring financial losses from incidents that threaten his or her health and life. These incidents can affect the financial well-being of this individual or those who are dependent on his or her income and wealth.
Below are the must-have insurance policies for protecting income, investment, and wealth:
• Health Insurance: An average individual or his or her entire household is one hospitalization away from poverty. This is true if he or she does not have adequate health insurance coverage. Healthcare services are expensive. Conditions that require serious medical attention can cost an individual thousands of dollars.
A health insurance policy fundamentally prevents out-of-pocket expenses by covering medical expenses either through direct remittance to the healthcare provider or lump sum benefit paid to the insured individual. Having one ensures that the savings and investments of an individual remain untouched.
There are specialized types of health insurance. The most common ones are state-mandated health insurance products and employer-provided healthcare benefits. Other examples are critical illness insurance which can either be a standalone insurance product or attached as a rider to a comprehensive life insurance policy.
• Income Protection: Another subset of life insurance is the so-called income protection insurance offered either as a standalone product or attached as a rider to a comprehensive life insurance policy. Its purpose is to provide cash benefits in case of incidents that affect the capabilities of an individual to generate income.
Examples include disability insurance that provides a lump sum amount in case the insured person becomes disabled due to illness or accident. Hospitalization and post-hospitalization income insurance policy provide cash benefits meant to replace income for each day that a person is hospitalized or unable to work while recovering.
Several established companies provide compensation for job-related injuries or incidents equivalent to the wages or salaries of disabled workers or employees. Critical illness insurance or long-term care insurance can also be considered an income protection insurance if used to supplement lost income due to illness.
• Life Insurance: The original purpose of life insurance is to provide cash benefits to the elected beneficiaries of an insured individual in case of his or her death. The insurance proceeds can be used to cover funeral and burial, settle debt and other liabilities such as estate tax, or ensure the bereaved beneficiaries remain financially afloat.
However, life insurance policies have evolved throughout the years. There are policies that include comprehensive coverage for death, critical illness, accident, and disability. Some products can also be used as an investment such as in the case of life annuity products, endowment policies, or unit-linked life insurance products.
A more specialized subset of life insurance is funeral and burial insurance. This is also called a memorial plan or pre-need insurance policy in other countries. The purpose of this product is to cover expenses associated with funerals and burials. Some pre-need insurance plans provide both burial assistance benefits and death benefits.
Pointers and Takeaways: Reiterating the Importance of Non-Life and Life Insurance in Building, Growing, and Preserving Wealth
Remember that insurance is a risk management tool designed to protect individuals from financial losses that might occur due to unforeseen incidents. General insurance or non-life insurance policies such as the different types of property insurance policies provide financial protection from costs and other liabilities arising from damages to properties.
Both health and life insurance policies treat a human being as an asset with the potential to generate income and create wealth. Furthermore, these products also see individuals as entities that are at risk of incurring financial liabilities due to unfortunate incidents.
The aforementioned items are the most essential insurance policies that average individuals should have. Note that it is not enough to have one. Each insurance policy should provide a suitable amount of coverage for maximum protection from financial losses.
It is important to reiterate the fact that the foundation of a sound and solid financial portfolio rests on risk management via insurance. Having different insurance policies collectively serve as a safety net that spares an individual from using his or her savings or liquidating his or her accumulated assets in case of unforeseen expenses.