Let’s start with the most urgent step in private financial planning, protection against financial ruin. When is this danger threatening? Exactly: when income drops or expenses explode. From a financial point of view, these risks can threaten the very existence of the company. And you can largely protect yourself against both.
Private financial planning: Protect against financial ruin
When the income drops the reason is usually that the previous main or sole breadwinner can no longer work be it due to illness, an accident or, even worse, a death. These strokes of fate are bad enough. There are ways to protect yourself against financial ruin: for example, with term life insurance, occupational disability insurance or daily sickness allowance insurance (for the self-employed).
- Protection in the event of incapacity for work: employer and health insurance companies pay
- Insurance in the event of occupational disability: Minimal statutory insurance
- Protection in the event of death: Term life insurance as a suitable form of insurance
Exploding expenses are usually caused by high treatment costs in the event of accidents and illnesses or by horrific claims for damages. Health insurance covers expensive treatment costs; meanwhile, a general compulsory insurance applies to the entire population. Not so with personal liability insurance. Contrary to what its name suggests, this insurance in contrast to motor vehicle liability insurance is not compulsory. If the worst comes to the worst, it takes on ruinous compensation payments in the millions for small monthly contributions. In addition, exorbitantly high expenses can arise if a replacement for the property or equipment has to be procured after a fire, theft or similar. Insurance is always advisable if these replacement purchases could not be made from their own resources, but would mean financial ruin. Roughly speaking homeowners insurance (for property owners): yes. Luggage insurance: no.
Done! When the most important safeguards against financial ruin have been taken (in most cases this means first of all: occupational disability insurance, risk life insurance, liability insurance), financial planning goes into the next round, see next subsection.