Role of insurance, pensions in financial planning

Pensions and Insurance Forum with DOREEN SILUNGWE
THIS week, we joined the rest of the world in commemorating the 2017 World Savings Day on October 31, 2017. The theme for this year was ‘Know and plan your finances to live a better life’ and it focused on key life events.

Some of these key life events which we need to save for include: getting married, having children, education, health, acquiring assets, starting a business and retirement.
Today’s column will, therefore, focus on the role that insurance and pension play in meeting financial costs associated with key life events.
What is the role of insurance in coping with key life events and what are the various types of insurance products available in Zambia?
Insurance is an important element of any sound financial plan. Various insurance policies protect you and your loved ones in different ways against the cost of accidents, 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, 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 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.
The insurance decisions you make should be based on your family, age, and economic situation.
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. Long-term insurance, for example, is a virtual necessity 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.
Planning for retirement is equally very important in financial planning, as you will one day have to retire. You therefore need to plan on how you will live when you retire from gainful employment or business. One way in which you can plan for retirement is by having a pension. A pension is simply an income that you earn when you retire. There are different types of pensions and these include the National Pension Scheme (popularly known as NAPSA in Zambia) and private pension scheme established by employees. Individuals can also set up pension schemes with insurance companies. Some reasons for planning for retirement include:
i. Increase in life expectancy: We are now living longer due to improved medical and health care, and therefore the need to have enough funds that can sustain longer life as you will still have expenses to meet.
ii. Change of social structures: Social structures have changed and there is less support from the family. Children still do support their parents and relatives but not at the level that it was in the past. There is therefore the need for a financial backup.
iii. Rest and relaxation: After fulfilling all your responsibilities, you may want to build a retirement fund to go on holidays, to pursue a hobby, etc.
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