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Main Types of Insurance Policies
Learn about the six most common insurance coverage types that are based on individual needs.
Three ways you can manage risk:
  • Accept the risk: Set money aside to pay for a loss.
  • Transfer the risk: Purchase an insurance policy.
  • Reduce the risk: Do a combination of accepting and transferring the risk.

Insurance Planning

Creating a solid financial plan includes managing risk associated with health, home, vehicles and protection of assets. Most of us strive for the right balance between the ability to live with a certain amount of risk and the confidence we may or may not have to replace or minimize the impact of loss. Insurance planning can help you.

Manage Your Risks While Protecting Your Assets and Well-Being

As part of a strategic financial plan, an insurance policy can help you deal with the unexpected life events that affect your health, wealth, and financial well-being. Knowing that you are insured to handle the impact of property or personal loss gives you the confidence to prepare for your future. Achieving financial stability is important to Americans. Insurance can help you balance various risks and keep you financially secure.

Why Do You Need to Manage Your Risk?

How can you rebuild your home if it burns down? What happens if you have an accident and will require long-term nursing care? What would happen to your family if you died? Would your children be able to attend college? These are common questions that are addressed with risk management — insurance protection to help minimize the impact of loss.

While health insurance is a very important policy, it is usually determined by your employer’s group benefits. Check with your employer for a description of your benefits.

What Are the Values of Your Assets?

Risk management begins with identifying the areas that are at risk in your financial plan. Assign values to those areas or assets, such as your income, home, car etc. Be as specific as possible. Once you have identified those areas, you can protect them by getting the proper insurance coverage.

Questions to Answer:

• What is the value of your home?

• What are the items in your home worth?

• How much is your car worth?

• What assets need protection from lawsuits?

• How much income would you need if you are unable to work?

While you are working on this exercise, think about the impact a sudden loss or accident would have on you and your family's ability to achieve your financial goals. It is uncomfortable to think about negative events, but you will have peace of mind knowing that you and your family are prepared to deal with loss during those difficult times.

How Do You Reduce Your Risks?

Your goals are very important when identifying areas of risk. When preparing a risk management plan, consider the risks associated with each type of goal.

For example, Monica plans to retire at age 62. As part of her retirement plan, she contributes $400 per month to her 401(k) plan. If she became disabled and unable to work for a number of years, her ability to save money for retirement would be affected. She would likely have to delay her retirement.

You can reduce your risk by being prepared — purchasing the appropriate type of insurance policy that can help minimize your loss.