The Different Forms of Financial Protection

Financial protection is achieved through careful planning, a sensible balance between a basic investment portfolio, and insurance.

There is nothing more despairing than the story of a retired individual who believed that they are covered in all circumstances, only to realise at the last possible moment that their policies weren’t as comprehensive or substantial as they needed them to be when an accident actually occured.

Or perhaps the instance of a responsible driver, who, after receiving a whiplash injury, couldn’t find a way to replace the loss of income due to inadequate protection. With the right protection – a solution could have been readily available.

Life is full of many surprises, both joyful and tragic. As much as the next person, I wish my life could be trouble free and without problems. But if only reality conformed to this rosy picture!

However, if we lived in constant fear of accidents or diagnoses we would live a very overshadowed life. With the right financial protection from a stocks & shares ISA portfolio with shares, corporate bonds or property investments, together with insurance policies, we shouldn’t have to worry about not having access to care & treatment.

Different Types of Financial Protection

This summary will provide a brief overview of the different types of insurance available. I won’t go into as much detail as an investing book.

Critical Illness Cover – Pays lump sum on the diagnosis of specific diseases, and occurance of specific injuries. Lump sum payments can be used to buy equipment, and make necessary adjustments to a house, for instance, to accomodate a wheelchair.

Personal Accident/Injury Insurance – A simple policy with a quick approval process that pays relatively small lump sums on diagnosis of specific conditions and injuries. Can also replace lost earnings for short periods of time. Those working in high-risk occupations must have this. You wouldn’t want to leave your family behind so abruptly without a blanket of security in the event of your demise. It’s crucial for medical workers, firemen, miners, and those who work closely with toxic substances to get themselves an insurance policy for protection.

Private Medical Insurance – A complex policy usually requiring an up-front medical exam before coverage can be given. Pre-existing medical conditions are strictly not covered by new policies. Many employers offer this as a benefit to their company and is a great come-on for many applicants to choose such a company when looking for a job.

Life Insurance – Pays lump sum on death. The exact sum is either a fixed amount, or linked to the performance of savings bonds or investments. Many set up a life insurance policy designed to pay off their mortgage in the event of their death. Such scenarios may seem very morbid to consider, yet burying your head in the sand is hardly a better option.  Most adults now get life insurance for the sake of their children in the event of their passing. Because of life’s uncertainty, many parents choose to have something substantial to leave their children.

Manufacturing Insurance- Entrepreneurs who took a big leap of faith and invested most of their life’s earnings to build a business must remember to acquire manufacturing insurance to protect their business from sudden interruptions, such as equipment damage, employee theft, and undue harm to its premises. It is wise to protect your investments so you’ll have something to fall back on just in case things go haywire.  This kind of protection will help keep your brand’s integrity as consumers rely on your resilience and strength. Without this kind of insurance, the probability of succumbing to bankruptcy might be higher, and you wouldn’t want all your hard work to go to waste.

Payment Protection Insurance – Usually sold alongside mortgages, ‘PPI’ is designed to pay your mortgage (or a similar outgoing such as rent or credit card bills) if you are made redundant, have an accident or become ill. The repayments will usually only begin after 3-6 months of job loss, so PPI should be see as a long term solution. (Personal Accident/Injury Insurance pays out after a much shorter period, but conversely will have a much shorter maximum payout length.

Car Insurance -Motor vehicle insurance can be extended to include an element of accident insurance. In recent years the coverage of automobiles became controversial with the inclusion of the ‘Acts of God’ clause that shields your vehicle from the cost of repairs due to natural disasters. Although, every country has a different implementation of this clause.

Getting outside help with financial protection

The range of insurance products available on the market is as vast as it is confusing. This is why I recommend you ask yourself: ‘Do I need a financial advisor?’

Contrary to popular belief, financial advisors don’t just encourage their clients to invest in emerging markets or other complex areas like structured products or investments in land.

They mainly ensure that the client has a financial safety net to fall back on in hard times – and in some cases, this might be best achieved through insurance rather than through investing.

The best financial planning, retirement planning and estate planning books also have plenty of advice to give on designing your financial plan with enough protection to cushion any financial shocks throughout your life.

If you do not wish to handle investments yourself, a qualified advisor will be able to cut through all the options and tailor a solution that will meet you your requirements. If you’d like to learn more and potentially buy shares and perform research on companies yourself, then begin our free investing course.

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