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Insurance Planning Is A Crucial Part Of Your Financial Freedom

April 22, 2012 | Comments: 0 | Views: 145

Insurance Planning is another one of those confusing topics that a lot of people like to avoid until it is too late. A prudent person will embrace the topic and learn whatever is necessary to protect their interests and secure their financial freedom. One small unprotected financial disaster could wreak havoc with your financial house. With proper insurance planning, you get to sleep comfortably at night. Without it, one small calamity could have a domino effect causing your financial freedom to be in serious jeopardy. The four cornerstones of Insurance Planning that we are referring to include 1) Life, 2) Homeowners, 3) Health, and 4) Auto Insurance. This article will concentrate on life insurance so be sure to watch out for the other three.

The first of the four pillars of Insurance Planning protection that you need to consider is Life Insurance. If you have loved ones or anyone in particular that depends on you for support, it would behoove you to get Life Insurance. As life in general has so many twists and turns, no one can predict the future. The last thing that you want to see happen is to have those close and dear to you grieving when you are gone and simultaneously lose any means of financial support and financial freedom.

There are two basic types of Life Insurance policies and they are Term Insurance or Whole Life Insurance, which has several variants. Term is the simplest type of policy which offers protection for a set "Term" such as 5 or 10 years. Some options to look for when buying Term include 1) guaranteed renewal feature, 2) convertibility to a more permanent policy, and a 3) death benefit which may increase, decrease or stay the same. The best candidate for a Term policy is a person looking for a simple, straightforward means of protecting their beneficiaries for a set period of time otherwise known as "The Term." If you buy the policy when you are young and healthy, the premiums will be very low such as only a few hundred dollars for $500,000.00 worth of protection. You would want the term to last until some major life event occurs such as when your mortgage is paid off or when your children leave the nest or when your retirement income starts to come in and you have reached financial freedom.

Whole Life Insurance, as it's name implies, covers you for your whole life. It comes in many "flavors" such as 1) single premium whole life, where one lump sum payment covers the whole policy, 2) Interest Sensitive Whole Life which has an increasing death benefit to help cover inflationary costs, 3) Universal Whole Life, a type of policy that includes tax deferred savings as well as a choice of premium plans and 4) Variable Whole Life, a policy that has an investment component tied to the stock market. These are just a few of the most popular variants. One common feature in all of these whole life choices is a build up of cash reserves that you can borrow against should your need arise. If you do not touch the cash value, it is possible to get to the point where this pool of money has built up high enough to cover the premiums for you going forward. At this point you would not have to lay out any further money to keep the policy in full force.

Traditionally, the return on this cash value (as an investment percent) is lower than you could capture using other financial instruments. Because of this, most financial professionals would advise you to keep your insurance planning and your investment planning separate. In most cases, the prudent course of action would be to "buy Term and invest the rest." The rest represents the amount in premium you would pay for a whole life policy above the premium for a term policy. Investing this extra amount of premium above the purchase of a term policy should certainly enhance your overall financial picture. This is one of the many ways that will help you reach true financial freedom!

Chris Borg is a practicing pharmacist and financial adviser who writes about health care and investing. Chris's latest website on financial freedom is at RatraceBgone, where Chris provides financial tips such as the 9 steps to financial freedom: 9 Steps To Financial Freedom

Source: EzineArticles
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