How To Use Insurance To Build Wealth

What You Need To Know

  • Insurance covers help you handle risks you don't want to pay out of pocket.
  • Not all insurance covers are beneficial for every situation.
  • Insurance products are not necessarily the best for investing.

Insurance works on pooling funds and the possibility of a risk playing out. The companies receive premiums from many people with the hope that not all of them will need payments concurrently. Premiums can increase when risk increases.

Risk is the possibility of an event happening. Details about one's lifestyle, like age, car, medical history, etc, can determine the premium you pay. Here are some insurance covers you can consider to limit your financial exposure to unwanted events while building wealth.


Medical Insurance

Medical events can negatively impact your finances. Some individuals have had to borrow to handle health emergencies. Such situations can happen without warning.

Aim to get both outpatient and inpatient covers. Remember to pay for the statutory covers on time to avoid penalties. Private insurance may not cover incidences that statutory providers handle.

Compare insurance cover details among various providers for the best deal. Brokers may have an objective view if they don't have vested interests in any of the registered providers. Get insurance coverage from regulated providers.


Term Life Insurance

You should take up term life insurance coverage to take care of your dependants income-wise if you are no longer there. Anyone who has anyone depending on them should take up this insurance as soon as possible. Take a coverage amount whose interest upon investing equals your regular income.

Let's say you are earning 10,000 per month. In a year, the amount adds up to 120,000. Taking a coverage of 1,200,000, assuming a return of 10 percent annually, will generate an annual income of 120,000. You can use investment calculators online to play out different scenarios.

Couples should consider, for example, how much daycare would cost if any parent is at home with the children. Aim for a 10 to 20-year timeline, depending on where you are on your building wealth journey. The cover should run for a period that allows you to build wealth to become self-insurable, which means your investments are enough to take care of your dependents whether or not you are around.


Car Insurance

Get comprehensive car insurance. The aim is minimal to no financial impact in case of accidents. Different jurisdictions have varying legal requirements for calculating the coverage.

Third-party car insurance does not cover damage to your vehicle, meaning you will have to dig into your pockets to sort out any damages in case you are in the wrong in an accident. Lack of comprehensive car insurance can be financially devastating, depending on where you are on your building wealth journey. Let insurance handle risks that you don't have to.

Shop around providers to get the best deal. Check out reviews from other customers on how they handle accident victims. The best deal is not necessarily the cheapest premium.


 Related Article - How Much Car Can You Afford?


Tips and Tricks

Take only the coverage that you need. Some insurance products are not worth your money. Don't take insurance for things you can handle, for example, using your emergency fund.

Remember, those selling insurance products have a vested interest as many get paid off the premiums. Brokers may provide you with options as some don't have vested interests in specific companies. Always take into account reviews for a practical perspective.

Read through the small print, and only sign up for what you understand. Pay your premiums on time and keep up with the list of changes within the industry. Get insurance covers only from regulated companies.

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