A recent report showed New Zealanders are under insured in several areas, including income protection and critical illness, two areas that are of critical importance to lawyers. This article looks at the issue from Medical Assurance Society.
Life and income protection insurance helps build financial resilience for you and your family should the worst happen. So why are so many Kiwis reluctant to get it?
If you haven’t got around to insuring your life or your income yet, you’re not alone.
A report released earlier this year showed that, although New Zealanders understand the importance of life insurance only 9% of us are adequately insured against critical illness, only 11% have enough income protection/mortgage repayment insurance, and less than a third of us have adequate life insurance.1
1 Financial Services Council: “Gambling on Life: The Problem of Underinsurance”, January 2020. Downloadable from fsc.org.nz
Denial of risk
So why don’t we approach life and income protection insurance the same way we do house and car insurance?
One of the reasons is that most people don’t like to think about bad things happening to them or their loved ones, according to MAS Product Manager (Life & Disability Insurance) Phil Belcher.
“No one knows who is going to be in a car crash get a head injury or get cancer – but what if it was you? How would that financially impact you or your familyPhil Belcher
“People tend to think ‘I’m not going to die young or fall seriously sick or get injured so badly I can’t work – that’s never going to happen to me’. And, for most people, that’s true. By contrast, people are good at insuring their cars because they see a higher incidence of motor vehicle crashes and costs, and it’s true there are far more car crashes than there are people dying under the age of 65.”
“By the same token, very few people will have their house burn down and yet we are still happy to insure against that happening. We need to start thinking about life and income protection insurance the same way we do about house and contents insurance.
“We don’t take it out expecting something bad to happen – it’s there in case something does.”
“No one knows who is going to be in a car crash get a head injury or get cancer – but what if it was you? How would that financially impact you or your family? What does no income for six or 12 months look like for you? What does no income ever again look like for your family?”
Who would be hit the hardest?
Life insurance is important for anyone with dependents – children and partners – who would struggle financially if you were to die. On the other hand, income protection insurance protects you if you were unable to work due to illness or injury.
One myth Phil hears is that income protection insurance is mainly for people on high incomes, but that’s not the case.
“The one thing people need most is income protection.””Everyone who has an income has something to lose. If you’ve got something to lose that has value, you should seriously think about insuring it.”
Phil Belcher, (left) MAS Life & Disability Product Manager
Even if you have savings you could fall back on if you were unable to work for a short period, people often underestimate their true living costs, especially as their lifestyle increases over time.
“If you can’t work because you’re sick or injured but you’ve protected your future income, what you do with that money becomes your choice. Otherwise, you’re going to have to make some really tough decisions,” Phil Belcher says.
The underinsurance gap
While many people don’t have life or income policies at all, many who do don’t update these regularly, which can leave them with a shortfall if they were to claim.
“Think about it this way. If you had an old Toyota and you upgraded to a new Audi, would you keep the Toyota insurance? No – you would ensure you were covered for the full cost of your new car.
“If your underlying risk has changed, this should trigger a review of your insurance.”
Phil says it’s worth reviewing all of your insurance policies annually but particularly when you have had a life change: when you’ve got a promotion and significant pay rise, bought a house, got married or had a child.
“Your income fuels all you do in life, and when it stops, so does everything you use it for. Think about all the things your income allows you to do today and plan to do tomorrow.
“That’s what’s at risk. If you’ve got that risk covered yourself, that’s great. If not, we’re happy to talk to you about how we can help.”
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