Under Insurance - Part Two

Under Insurance - Part Two

I’ve got insurance this under insurance thing doesn’t apply to me? It probably does apply to you

What I’m referring to by underinsurance are the various studies around the world, that are pretty consistent with saying about 70% of the population are under insured when it comes to life insurance.

Why do I say it probably does apply to you?

Under insurance is a funny thing, you might have enough life cover to cover your debt, final expenses, bucket list, kids education, completing retirement planning and your future income until retirement and some to cover the ever elusive lotto win. But you don’t have trauma insurance, income protection and permanent disability cover and you don’t have medical insurance. All do very different things when you have medical challenges in life; problem is you’re only covered if you die.

Well insured for life cover, not insured for things that don’t kill you. This is the under insurance most studies are referring to and the hidden issues you face, because people often don’t know what they don’t know.

The harsh reality of insurance is: If you can afford the premium to cover everything, then you probably don’t need the cover. Which means for the majority of us, we need the insurance but we can’t afford to cover everything, so by default we are underinsured.

It’s a bit like the exponential curve graph back in math class, the closer you get to 0 the higher the curve got, but it never quite got to 0. Here it’s the higher the cover the higher the premium, to be covered for everything is an impossible premium. :)

Another reason you may think it doesn’t apply to you.

Something else that muddies the water is the terminology used. The studies often say under insurance with life insurance.

For the man, or woman, on the street this means life cover, insurance if/when you die.

For the research and the insurance industry; life insurance means life cover, trauma cover, income protection, total & permanent disability covers. All of them not just life cover.

Meaning for you, the one having the medical event, disability or dying, there’s a good chance you don’t know there are other options you could or should have been looking at.

This leads us full circle to, ‘I have cover but it didn’t work when I needed it.’ Yup, because you had a medical event and you survived and you only have life cover, which pays when you die and not when you’re here to complain it didn’t work ;)

Ok maybe a bit harsh, but the reality is we have an under insurance problem and insurance is also the one product people hate paying for. They don’t mind it, actually quite like it, when they have a claim, but paying for it until then is always a reluctant challenge.

So let me ask you better questions:

No not the do you need insurance ones.

If something happened to you or a loved one in your household would you like:

  • Access the appropriate medical treatment and care you need
  • Do those things in life you have always wanted to
  • Maintain your lifestyle
  • Spend more time with your family and loved ones
  • Reduce stress
  • Pay your bills
  • Pay off or reduce debt
  • There are many things that could be on your list of what you want from life, if the wheels fall off these are the things that will really matter to you.

Enabling you to do/achieve these things is where insurance comes in. It is a tool to enable you and your lifestyle financially, when you otherwise couldn’t.

Which is where we get into transfer of risk. Let’s say you have a mortgage of $200,000. The reality is if you die or are disabled the bank will want either the continued repayments or their money back. Without insurance you have to find the money or face the difficult decision to sell your home. This translates to $0 cost now $200,000 in the future if you have to repay the money suddenly because something happened.

By introducing insurance you transfer the risk to someone else, in return you pay a small premium, relative to the original risk. There is $xx regular cost to you in return for the insurance company fronting with the $200,000 if the wheels fall off. Yes this regular cost adds up over time, but so does the likelihood the insurer will have to pay, the longer you hold the policy the more certain the insurer will have to pay.

If you haven’t sat down with an adviser to discuss your situation so you know what your risks are and what your options to mitigate them are, then you are in the don’t know what you don’t know camp.

Sitting down with an adviser shouldn’t be scary; it shouldn’t be high pressure either. It should be a bit challenging because it is your life and your adviser needs to know how you feel about things. What you want, what you don’t want and also what you want some but not all of. Back to the $200,000 it could be if you died the remaining family could easily support paying a $50,000 mortgage but not the $200,000, ideally paying off $200,000 would be the preference, but paying off $150,000 still means they can keep the house.

Pragmatism is also part of the insurance planning process, because being insured completely in one area may mean you have no cover in others. Having adequate cover in one area may enable you to have some cover in other areas. Worth thinking about.

Which brings me to Medical insurance and some disturbing stats. We’re so gung ho about having a dig at the Aussies, but we’re lagging behind significantly when it comes to insurance particularly medical cover.

69% of Australians have medical insurance while just 25% of Kiwi’s do. This is interesting as medical insurance in Australia when compared to New Zealand is almost double in price to New Zealand and they are nearly 3 times more insured. Add to this the general perception that the Australian public medical system is considered better than the New Zealand one; we are a long way behind in this area of insurance.

While we’re having a crack at the Aussies, the rest of the stats:

  • Life Cover, Australia 54%, New Zealand 39%
  • Income Protection, Australia 45% New Zealand 20%
  • House Contents and Cars, this is one area where we are about even on around 79%, but still a short fall of over 20%

There are all sorts of reasons, good and poor, that people don’t have insurance, the most ironic one is cost of living. Yes living costs significantly more than it used to, part of the reason insurance is really important to ensure your living costs are covered when you aren’t able to.

If this is all a bit challenging but you want to sleep peacefully at night, get in touch, we’ll help sort it out for you.

Jon-Paul Hale

Written by : Jon-Paul Hale

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