Types of Financial Planning a Family Leader Should Know

As a leader in a family, you may come across the term "family planning". Family planning is one of the life planning. Life planning is a process by which a person takes a more proactive role in planning his or her life. Basically, family planning can be divided into two categories, which are protection and planning.

"Susan is a housewife who has two children. All the daily expenses were depended on her husband, James. Even though their budgets were tight, but James's income was still enough to sustain the family. But their life became more difficult when both children had reached preschool. At the moment, sadly, James was killed in an accident. Fortunately, Susan inherited the benefits of having purchased a $10,000 life insurance policy. It will only be enough to buy her time to find a job and put her children through secondary school."

This is a real story which happened to so many families today. In the protection category, life insurance plays a key role in the family financial planning. It is a protection against the loss of income that would result if the insured passed away. The goal of life insurance is to provide a measure of financial security for family after the insured die. It can help to pay for final expenses and funeral costs, pay off the debts and taxes of the insured, allows the family to maintain its standard of living, supports the dependents' goals and dreams and provide immediate access to cash.

In addition, there is also health insurance that covers health care expenses incurred by policyholders. A real example of my friend as below.

"My friend was facing a sudden chest pain during vacation. She went to the nearest hospital instead of going to her own doctor as she is away from home, and stayed at the hospital for a day. After one week, she received the bill from the hospital. It costs her for $1,500 but, she claimed it from her health insurance."

Try to imagine the cost if she had no health insurance. As a result, the policyholders do not need to reduce their savings or increase their debt level when they required medical attention because health insurance can protect their net worth. There are also government health plans. The Medicare program provides health insurance to individuals who are over 65 years of age and qualify for Social Security, or are disabled. The Medicaid program provides health insurance to individual with low incomes. The service providers in this category are ING insurance company, AIA insurance company and etc.

Under planning category, there are retirement planning, college planning, and estate planning. A retirement plan is an arrangement to provide people with an income or pension during retirement, when they are no longer earning a steady income from employment.

The quality and timing of retirement will depend largely upon our own efforts even if we have a retirement plan available. Social Security, an employer-sponsored retirement plan provides income to qualified individuals to support them during their retirement. Furthermore, it has two types of plans which are defined-benefit plans and defined-contribution plans. Defined-benefit plans guarantee employee a specific amount of income when he/she retire, based on factors such as salary and years of employment, while defined-contribution plans specify a guideline under which the employee and/or the employer can contribute to the employee's retirement account and that allows them invest the funds as wish. There are a few popular defined-contribution retirement plans offered by employers, such as 401(k) plan. 403-b plan, simplified employee plan (SEP) and employee provident fund (EPF).

Furthermore, as a parent, how do you bear the tuition fees when the cost of college continues to rise up? The answer is college planning. College planning includes several plans. Regardless of any plan, saving for a child's college education is like any other investment. The sooner the parents start the plan, the better the chances of the money will increase substantially and enable them to pay for their child's education with ease. The service providers are student loan and school scholarship where poor families too can send their children for higher education with this college planning.Finally, estate planning is a process of setting goals and objectives, and developing strategies for disposing of assets and providing for family members, friends, and charities at death. Estate planning is a part of financial planning because estate planning goals, objectives, and strategies affect the financial planning process during life. It can help towards ensuring the proper distribution of assets, minimizing estate taxes and other expenses and avoiding costs, publicity, and delays of probate and guardianship hearings.