How can insurance be an essential requirement for planning?

Insurance is a very important part of financial planning (assuming you mean financial planning and not something else). Insurance is there to manage risk...if something bad happens it will bail you out without paying the entire amount yourself.

Let's use retirement as an example:

Long Term Care insurance: You are most likely to use it when you are retired. The costs of long term care will severely irrode your retirement savings VERY quickly since there is a huge cost to staying in a Long Term Care facility or hiring a nurse to come to the house to take care of you. Also, if something happens prior to retirement and you need long term care for a period of time, you won't be able to continue to save for your retirement as you will likely have no income and increased expenses. Depending on your age this could be a huge one...once the babyboomers start filling hospital and long term care beds, what do you think is going to happen to the costs of health care...increased demand (more people needing beds) + lower supply (no more facilites being built because it's a temporary need...once the babyboomers are dead, there aren't nearly as many people needing the services) = prices and costs increase (AKA: they will charge more for the services)

Critical Illness Insurance: If you get diagnosed with a critical illness like cancer, heart attack or stroke (the average age of diagnosis is 48 for critical illnesses), you may need to come up with a substantial amount of money ($50,000 to go to the Mayo Clinic in the US, which is a leading clinic) so you can focus on recovering and not be forced to work through Chemo treatments etc. If you don't have an insurance policy to pay out that money, where will that money come from?

You won't get a loan (You: "Hi Mr. Banker, I need a loan for $50,000 so I can get treatments for a serious illness. I might die in 2 months and not be able to pay it back, but can we do it anyway?" Banker: "BAHAHAHAHAHAHA - Not a chance!). Even if you do get the loan, you will get a monthly reminder for the next 5 years everytime that huge payment (which could be going to your retirement savings instead) comes out saying "Hey, remember when you almost died and how much it is costing you to get better?"

The only other option is to withdraw from your savings. #1 - you may trigger a taxable distribution meaning you will have to pay taxes over and above that $50,000 you withdraw #2 - you may have to pay some sort of 'penalty' or fee to withdraw you savings (IE: DSC fees on mutual funds, brokerage fees on stocks, interest penalties on GIC's, etc) #3 - by withdrawing that money you are losing out on a serious amount of compunded interest. This can add up to a HUGE amount by the time you retire.

Most good Critical Illness plans have a return of premium option on it where you get all your money back if you cancel it after a certain period of time. It's a money back guarantee, why wouldn't you cover your butt if it doesn't cost you anything in the end?

Here's a calculator to figure out the cost of a critical illness if you withdraw from an RRSP (Iif you're in Canada. IF you're not it should work out to being close since it's factoring lost compounded interest, etc): https://www.tolivewell.ca/LiveWell/public/e/RRSPWithdrawal/ImpactOfWithdrawal.aspx

Finally Life Insurance: Whole Life insruance comes in handy more for tax planning purposes. You can contribute to a life insurances policy fund and it grows tax sheltered and you can withdraw it tax free if you do it right. It's one of only a couple legal tax shelters that are endorsed by Canada Customs and Revenue Agency (it's written right in the income tax act). RRSP's are tax sheltered, but you still pay tax when you withdraw them. Further, if something happens and you die, all those RRSP's will be taxed when they get passed on...a Life insurance policy can cover the taxes and preserve you estate from the tax man so your family can enjoy all the money instead of giving most of it to the governement Unless of course you like the governement more than your family...haha Term life insruance is useless in retirement planning...it has no tax advantages and will expire at age 80...it's good for short term uses (protecting your family from your debts, or making sure the kids get through school), but not retirement planning.

Any other insurances you were wondering about?