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Insurance
One of the classic insurance agent sales pitches went something like this: “Insurance is the one product you can’t buy if you wait until you need it.” It would seem that gas in the car’s tank fits that definition, too, but that’s not the point. The point is, insurance for today’s working men and women is an integral part of their financial plans – assuming, of course, that they have a plan at all.
Obviously, there are all kinds of insurance policies covering all kinds of risks. The three kinds of insurance that most people are familiar with are car insurance, medical insurance and life insurance. The first is required by most states for you to drive, the second is most often provided by one’s employer and the last one is what couples start thinking about after they get married and have a kid or two.
In fact, insurance goes a lot farther than these three applications, and our modern lifestyles would grind to a halt without insurance companies. No movie gets made in Hollywood today without an insurance policy protecting against a star’s untimely death or a director who can’t finish his shooting schedule. No aircraft flies the friendly skies without a huge amount of liability coverage. Insurance, quite frankly, makes the world go around – although love and money do help, too, as various song lyrics and old sayings attest.
The big three
The big three insurance policies for most people, then, cover their cars, their medical bills (or part of them) and their lives. Insurance is a way to protect against the loss of a physical piece of property, like an automobile, as well as the loss of loved ones and their future earnings. Cars, health and life are the premier areas of concern for most people.
However, other people, including about every businessman in the world, need to protect against any number of other eventualities. A widget manufacturer needs insurance for his facilities and inventory, while an oil tanker operator needs to insure against the vagaries of ocean storms and engine malfunctions. Property needs to be insured, and equipment and machines need to be insured against both loss and damage, as well.
Doing the math
Frankly, once a person or couple starts to accrue a few nice things in their life – cars, home and, yes, children – the integration of insurance policies into their overall financial plan becomes a must. Many people need the help of a financial planner or other professional to calculate these needs.
The amount of coverage to get for a car is an easier calculation to make that the coverage on the home’s breadwinner(s). A car has a certain “replacement value,” but there is no simple math to figure the value of a human being. The best approach is to consider earnings, age, anticipated lifespan, etc., and come up with a figure that will replace the person’s future earnings in the event of death or disability.
Property calculations are, of course, easier to make, although it will take some work to come up with actual replacement values for some possessions. It is wisest to use replacement value for insurance valuations, rather that original cost, since the latter does not take inflation or appreciation into account.
A properly devised financial plan – for an individual, a family or a business – will consider all relevant factors, including insurance. With the right balance of income, expense, investments and insurance, the vagaries and vicissitudes of modern life can be managed and minimized. If you need professional help to do this, by all means get it.
Topics: Insurance |
