INDIVIDUAL INVESTOR LIFE CYCLEFinan

INDIVIDUAL INVESTOR LIFE CYCLE
Financial plans and investment needs are as different as each individual. Investment needs
change over a person’s life cycle. How individuals structure their financial plan should be related
to their age, financial status, future plans, risk aversion characteristcs, and needs.
Before embarking on an investment program, we need to make sure other needs are satisfied. No
serious investment plan should be started until a potential investor has adequate income to cover
living expenses and has a safety net should the unexpected occur.
Insurance Life insurance should be a component of any financial plan. Life insurance protects
loved ones against financial hardship should death occur before our financial goals are met.
The death benefit paid by the insurance company can help pay medical bills and funeral expenses
and provide cash that family members can use to maintain their lifestyle, retire debt, or invest for
future needs (for example, children’s education, spouse retirement). Therefore, one of the first
steps in developing a financial plan is to purchase adequate life insurance coverage.
Insurance can also serve more immediate purposes, including being a means to meet longterm
goals, such as retirement planning. On reaching retirement age, you can receive the cash or
surrender value of your life insurance policy and use the proceeds to supplement your retirement
lifestyle or for estate planning purposes.
You can choose among several basic life insurance contracts. Term life insurance provides
only a death benefit; the premium to purchase the insurance changes every renewal period. Term
insurance is the least expensive life insurance to purchase, although the premium will rise as you
age to reflect the increased probability of death. Universal and variable life policies, although
technically different from each other, are similar in that they each provide both a death benefit
and a savings plan to the insured. The premium paid on such policies exceeds the cost to the
insurance company of providing the death benefit alone; the excess premium is invested in a
number of investment vehicles chosen by the insured. The policy’s cash value grows over time,
based on the size of the excess premium and on the performance of the underlying investment
funds. Insurance companies may restrict the ability to withdraw funds from these policies before
the policyholder reaches a certain age.
Insurance coverage also provides protection against other uncertainties. Health insurance
helps to pay medical bills. Disability insurance provides continuing income should you become
unable to work. Automobile and home (or rental) insurances provide protection against accidents
and damage to cars or residences.