FAQ  #4. Why such a big emphasis on insurance?

Insurance planning is an integral part of personal life planning because

The whole institution of insurance wouldn’t exist if the future were knowable. Since it is not, the only thing we know is that we will die, and probably not without suffering a few or more times from various illnesses and injuries first. Death can be financially devastating to dependents, a family, or a business. Consequences of illness or injury can be even worse. Insurance can provide for these tough times. Also, insurance can help coping with another frequent danger: outliving our financial resources.

It is customary to illustrate components of financial planning in a pyramid-like hierarchy, with insurance close to the bottom, … signalling its underpinning role to other components. Please see such a hierarchy in FAQ 10.

The first step of dealing sensibly with insurance in its basic function is to face the possible financial consequences of some gloomy - but realistic - scenarios of illnesses, injuries, death, or living longer than our assets last. It takes guts to do this, but the potential benefits make it worthwhile to anybody.

The second function is relevant usually for people of means, but you don’t have to be a millionaire for being able to take advantage of mainly the various tax-advantages of many insurance products and applications. Wherever there is a need or want for wealth creation and transfer in a business or a family, there is a good chance that insurance can play a useful role.

There is a practical reason also for the inclusion of insurance in any broad financial planning service. The investment side of financial matters is regulated such that people, at least in principle but some in practice as well, can do without the intermediary role of sales persons. Stocks, funds, bonds, etc. can be understood and bought directly by anybody who takes the trouble of getting knowledgeable about them. Insurance, however, is a much more guarded area, like it or not: detailed information and product access is not offered directly to consumers. (There are some limited direct marketing efforts and seemingly direct access via group insurance plans perhaps, but these are generally very limited in scope, and attractive only until not compared to the wide choice available through traditional commission-based sales people.)