What role does insurance serve in financial planning?

Insurance plays a vital role in financial planning primarily as a mechanism to manage risk and protect individuals and families from financial loss. Life is unpredictable, and various unforeseen events, such as accidents, health issues, natural disasters, or the death of a breadwinner, can lead to significant financial burdens. By incorporating insurance into a financial plan, individuals can mitigate these risks and ensure that they have financial backing in times of crisis.

Having the right insurance policies helps maintain financial stability by providing a safety net. For instance, health insurance can cover unexpected medical expenses, while property insurance can protect against loss of assets. Additionally, life insurance can ensure that dependents have financial support in the event of the insured's death. This security allows individuals to focus on long-term financial goals and investments without the constant worry of potential losses due to unforeseen circumstances.

In contrast, minimizing costs associated with financial planning, increasing annual income, or creating investment opportunities are not the primary functions of insurance. Instead, those aspects might align with broader financial strategies, but insurance specifically addresses the need for risk management and loss protection.