What is financial wellness?
Before we talk about your financial wellness plan and why insurance planning is such as big part of that, let’s first explain what we mean by financial wellness. Financial wellness is the ability to live within your means and manage your money in a way that gives you peace of mind. This includes having an understanding of how money works, balancing your income and expenditures, avoiding going into debt, saving for the future and preparing for unexpected eventualities. Finances are commonly a major source of stress and anxiety for adults, so this is why we call it financial wellness, because if you properly manage your money, you will reduce the stress and anxiety you feel. The role insurance plays in financial wellness is therefore crucial because the main reason for insurance is to act as a shield to protect you from unforeseen circumstances and mitigate your financial risks, helping to find financial wellness.
Risk management
When it comes to financial wellness, there are some unforeseen circumstances and risks that can severely impact upon your finances. Health and medical expenses are a big one. Of course, in the UK we get free medical care on the NHS, however, there are lots of other expenses when it comes to medical emergencies. For example, medications can become quite expensive, especially if you need a lot of them, and there are other things like car parking fees at the hospital, time off work, eating at the hospital, all of which add up. If you decide to have private medical treatment, this again is going to be an extra expense, and quite a large one. Dental emergencies also fall into this category. Before a dentist can work on your dental problems, they will need to examine you and take x-rays, which you will need to pay for, then there’s the cost of the treatment you need and any prescriptions you require to help you to get back to full oral health. Outside of your body, you also need to think about your home, things like property damage due to accidents, natural disasters or theft or vandalism can be very expensive to rectify. There is also liability for damages or injuries to others which could impact on your financial wellness, leading you to pay compensation and even legal fees. Furthermore, there is also the risk that you will lose your income due to injury, disability or even death, which would mean you would have much less money coming into the household. These are perfect examples of what insurance is designed to protect you against.
Insurance Planning
Insurance planning is essential if you want to make sure you are prepared for any unexpected circumstances that arise. You need to understand all the different insurance types available and what they cover you for, so that you can make sure every area of your life remains safe, if the worst should happen. First, let’s take a look at what insurances are available on the market, so you can understand which ones might be applicable to you.
Health Insurance
Health insurance is important, this covers you for unforeseen medical expenses, treatments, medication and hospitalisation, it will help to reimburse you for payments you have had to make for your medical bills, so you can avoid high medical bills. Nobody plans to get ill or injured, it just happens, but most people will need medical attention at some point during their lives. Health insurance covers essential health benefits which are crucial for maintaining your health and treating illnesses and injuries, they help you to lower your medical bills, provide you with free preventative care, and even cover you for regular check-ups.
Property Insurance
By paying a small, regular fee for property insurance, you have the peace of mind that if your home, vehicle and/or personal belongings were to be damaged, lost or stolen, the insurance company will cover your loss. Property insurance includes homeowners insurance, renters insurance, and flood insurance, among many other forms of property insurance. However, it is important to keep in mind that property insurance doesn’t cover all property equally, for some things (such as expensive jewellery) you may need additional floater coverage. In some cases, it is required that you do have property insurance. This type of insurance is often purchased with liability insurance.
Life Insurance:
Life insurance is designed to protect your spouse, family and loved ones in the event of the policy holders death, providing financial security so that they may pay off debts, pay living expenses and pay any medical or final expenses. If you purchase life insurance then, in the event of your death, a lump sum will be paid directly and immediately to your loved ones, giving you the peace of mind that they will be looked after, once you are gone.
Disability Insurance:
Disability insurance is designed to protect your income in the event you become disabled or unable to work due to illness or injury. In effect, it is designed to replace the income you will be losing by not being able to work, so that you do not see a sudden drop in your incomings each month. Just like with health insurance, you cannot plan for injuries or illnesses, they happen when you least expect them, which is why disability insurance is so important.
Liability Insurance:
If someone were to become injured because of an accident caused by you or your property, you might find yourself in a legal case, where the injured party is suing you and asking for some kind of compensation. Liability insurance is designed to protect you in these cases, providing you coverage for legal expenses and any financial liability that arises, including compensation payments. Even if the other parties claim is unsuccessful, you may still find yourself having to pay large sums of money towards the legal fees, so liability insurance gives you peace of mind that if anything were to happen, you won’t have a large expense to pay as a result.
Benefits of Insurance
As we have touched on, there are lots of benefits to making sure you have the correct insurance in place. The most obvious benefit is the financial security insurance provides you. When you are properly insured you know that you are protected against any unforeseen expenses and financial hardships that could severely impact upon your finances and in turn, your financial wellness. This, therefore, leads to a peace of mind that you get when you know you are covered by insurance. You will have the reassurance and confidence of knowing that you and your loved ones are financially protected and whatever life throws at you, you will be able to handle without it impacting upon your financial state. The third benefit to insurance is risk management. With insurance you mitigate financial risks and uncertainties, which allows you to have better financial planning and stability for the future. Another important benefit is asset protection. With insurance you know all of your assets and investments, which make up your financial status, are protected from potential losses and/or liabilities.
Financial Wellness Integration
As we discussed earlier, financial wellness means understanding your finances, budgeting, saving, investing and debt management. By integrating insurance into this you have protection so that if anything were to happen, your financial wellness would not be negatively impacted. Insurance, of all types, is crucial in creating a holistic financial wellness strategy, ensuring your protection for the future and any unexpected events that may arise.
Customization and Review
Before you begin looking at insurance and comparing policies, you should first take the time to understand your insurance needs. What insurance do you need? Which would provide you and your family with financial protection? And what level of insurance would you need, for example, if your home was worth £300,000 but you only cover it for £100,000 and then it gets completely destroyed by a natural disaster, the insurance you are awarded will not be enough to cover the expenses of rebuilding. It is also important to remember that your life, property, assets and investments will all change throughout the years, so you should always make sure that the insurance you have in place still properly covers you in the event of something happening, if not, you should tailor your insurance accordingly.
Insurance is a vital
With all of this in mind, you can now understand how insurance is a vital component of a comprehensive financial wellness plan, allowing you to be proactive in risk management and providing financial protection for yourself and your loved ones, whatever should happen in the future.