--- title: What Role Does Insurance Play in Financial Planning? description: According to the experts, there are several types of insurance coverage that almost everyone should incorporate into their financial plan. image: https://www.realized1031.com/hubfs/insurance-1295819436.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What Role Does Insurance Play in Financial Planning? Posted Jul 26, 2022 ![insurance-1295819436](https://www.realized1031.com/hs-fs/hubfs/insurance-1295819436.jpg?width=750&height=392&name=insurance-1295819436.jpg) Insurance is a word that covers a lot of ground—people may insure their vehicles, homes, other possessions, their health, their faces, and, of course, their lives. You may not need to insure the continued appearance of your hands or face (unless you make your living as a model). Still, there are several types of insurance coverage that almost everyone should incorporate into their financial plan, according to the experts: 1.     Life insurance 2.     Automobile insurance 3.     Health Insurance 4.     Homeowners’ or renters’ insurance 5.     Long-term care insurance 6.     Disability insurance 7.     Umbrella insurance (for those with substantial assets) ### What Insurance Is Required? Some insurance is required, either by law or by the financial institution that has loaned you money. For example, every state (excluding New Hampshire and Virginia) requires automobile owners to carry a minimum level of liability insurance to protect other people in case they cause injuries or property damage with their vehicle. If you own your car outright, that is all you must carry, but if you have a loan on the car, the lender will also insist that you purchase coverage to repair or replace the auto in case of accident or theft. However, even if you don't have to insure your vehicle, consider whether you can afford to lose your investment or expose yourself to the risk of a lawsuit for the harm you cause with the vehicle. Liability insurance is an excellent example of something you pay for in the hope that you will never need it. If you own your home (with no mortgage), you do not have to have insurance, but you should. The same reasons outlined for needing liability and personal property coverage for your vehicle are even more critical when referring to the tremendous investment of a house. If the dwelling is financed, as most are, the lender will require that you purchase insurance (or they will do so and add the cost to your required payments). ### What About Health Insurance? The Affordable Care Act requires every U.S. resident to have health insurance and requires large employers to offer affordable and comprehensive coverage to their workers. People who don’t have access to affordable coverage through an employer (or their spouse’s or parent’s employer) have other options for obtaining insurance. Still, so many Americans are uninsured or underinsured, and medical debt is one of the biggest problems for people, especially those trying to save for retirement or a down payment for a home. Unexpected medical bills can derail financial planning and retirement savings quickly. Similarly, most people without substantial resources are unprepared for the loss of income that could accompany a short- or long-term disability. Most disabilities that prevent people from working are caused by illness rather than accidents, and very few are related to work. Often, disability insurance is an optional offering that people skip over when prioritizing insurance expenditures. ### Life Insurance Is Complex and Vital [Life insurance](https://www.realized1031.com/glossary/life-insurance) has numerous variations, including term, whole, universal, variable, and more. The simplest version is term life, which offers a specific amount of coverage at a set rate for a set time. For example, if you are young and healthy, you may be able to buy a high amount of coverage at a moderate price for twenty or thirty years, even without a medical exam. But when that period ends, assuming you have not died, you receive nothing in return for the payments made, and you will pay a higher price if you want to renew. The other types (whole, universal, variable) typically include a cash accrual component. As the policy owner makes regular payments, they have the protection that comes with term coverage but also build some value that they keep. The owner can borrow against that value or even withdraw it (which would then reduce the amount of the insurance policy payment if death occurred). This kind of insurance is more expensive than term policies and typically has a lower return than other investments but with the advantage of stable or guaranteed rates. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Examples are hypothetical and for illustrative purposes only. Withdrawal strategies should take into account the investment objectives, financial situation and particular needs of the individual. 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Still, there are several types of insurance coverage that almost everyone should incorporate into their financial plan, according to the experts: Life insurance Automobile insurance Health Insurance Homeowners’ or renters’ insurance Long-term care insurance Disability insurance Umbrella insurance (for those with substantial assets) What Insurance Is Required? Some insurance is required, either by law or by the financial institution that has loaned you money. For example, every state (excluding New Hampshire and Virginia) requires automobile owners to carry a minimum level of liability insurance to protect other people in case they cause injuries or property damage with their vehicle. If you own your car outright, that is all you must carry, but if you have a loan on the car, the lender will also insist that you purchase coverage to repair or replace the auto in case of accident or theft. However, even if you don't have to insure your vehicle, consider whether you can afford to lose your investment or expose yourself to the risk of a lawsuit for the harm you cause with the vehicle. Liability insurance is an excellent example of something you pay for in the hope that you will never need it. If you own your home (with no mortgage), you do not have to have insurance, but you should. The same reasons outlined for needing liability and personal property coverage for your vehicle are even more critical when referring to the tremendous investment of a house. If the dwelling is financed, as most are, the lender will require that you purchase insurance (or they will do so and add the cost to your required payments). What About Health Insurance? The Affordable Care Act requires every U.S. resident to have health insurance and requires large employers to offer affordable and comprehensive coverage to their workers. People who don’t have access to affordable coverage through an employer (or their spouse’s or parent’s employer) have other options for obtaining insurance. Still, so many Americans are uninsured or underinsured, and medical debt is one of the biggest problems for people, especially those trying to save for retirement or a down payment for a home. Unexpected medical bills can derail financial planning and retirement savings quickly. Similarly, most people without substantial resources are unprepared for the loss of income that could accompany a short- or long-term disability. Most disabilities that prevent people from working are caused by illness rather than accidents, and very few are related to work. Often, disability insurance is an optional offering that people skip over when prioritizing insurance expenditures. Life Insurance Is Complex and Vital Life insurance has numerous variations, including term, whole, universal, variable, and more. The simplest version is term life, which offers a specific amount of coverage at a set rate for a set time. For example, if you are young and healthy, you may be able to buy a high amount of coverage at a moderate price for twenty or thirty years, even without a medical exam. But when that period ends, assuming you have not died, you receive nothing in return for the payments made, and you will pay a higher price if you want to renew. The other types (whole, universal, variable) typically include a cash accrual component. As the policy owner makes regular payments, they have the protection that comes with term coverage but also build some value that they keep. The owner can borrow against that value or even withdraw it (which would then reduce the amount of the insurance policy payment if death occurred). This kind of insurance is more expensive than term policies and typically has a lower return than other investments but with the advantage of stable or guaranteed rates. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Examples are hypothetical and for illustrative purposes only. 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