Pensions and Insurance Forum:
HAPPY New Year to all our readers.
Today, we focus on insurance and financial planning. Being the beginning of the year, most of us are busy working on our financial plans for the year. Financial plans should be customised to meet specific individual needs at different stages of life. It is also important to have a balanced mix of financial instruments to address the various needs of protection, savings and wealth creation. It has been widely observed that people tend to focus on the ‘wealth creation’ aspect of financial planning and often neglect the ‘protection’ through insurance.
Risk management should form the basis of any financial plan. While the main objective of buying an insurance policy is to protect yourself from unforeseen circumstances, it can also help in wealth accumulation, preservation and give access to liquidity at the right time, if added as a component of financial planning.
Various insurance policies protect you and your loved ones in different ways against the cost of accidents, theft, fire, illness, disability, income loss and death. Insurance can also encourage prevention and safety measures, provide investment capital and help to reduce anxiety at personal level. It is a life’s necessity but probably the least-understood financial product.
Until something happens, such as a car accident, theft, an illness, or the death of a loved one, paying for insurance may seem like buying something you will never use.
However, even if you never submit a claim, insurance is an investment in your future, as important as savings, pensions and personal investments. Some financial planners even argue that you should have an adequate insurance safety net in place before considering investment strategies.
Insurance protects one against losses you cannot afford by transferring the risks of a person, business or organisation to an insurance company. As an insurance consumer, you pay an amount of money called a premium to the insurer to transfer the risk.
The insurer pools all its premiums into a large fund, and when a policyholder has a loss, the insurer draws funds from the pool to pay for the loss.
There are two types of insurance: general and long-term (life) insurance. General insurance has to do with insuring of assets such as motor, home ownership, building, machinery, for instance, while long-term insurance has to do with coverage of the human being and it includes health, funeral, education and life.
It is important in financial planning to have long term insurance if one has a spouse and children as they would want in the event of loss of income through death or otherwise want to ensure that the family is well taken care of even after someone is gone.
We have several insurance products currently on the market to meet various needs. These include education policies, which help one to plan for your children’s education, motor, medical, funeral, business-related insurance policies, agriculture, property, marine and endowment plans that help one to save for a longer period.
The insurance decisions you make should be based on your family, age, and economic situation.
For comments, questions or clarifications, send us an email: firstname.lastname@example.org. Kindly also like our Facebook page: Pensions and Insurance Authority (PIA Zambia).