Does fiscal disaster lurk around corner?
Personal finance disasters can emerge out of the blue. Every February I think about the people whose financial lives were ruined by the Canterbury earthquakes — as well as those who lost their lives, of course.
Many lost their employment, their businesses and their homes. Some homeowners were still fighting insurers a decade after the February 22, 2011, earthquake.
Total Wealth Limited consultant Brian Coker lost both legs in the earthquake. I asked the former financial adviser what money lessons we could learn from the earthquakes.
“I think that the earthquake should have taught us a lot about being prepared for other black swan events. Fires and floods have been other recent events which will have had significant financial implications for individuals and, of course, Covid has had financial implications for many people, particularly self-employed and smallbusiness owners.”
Government support measures only go so far.
Coker says employees should be aware of the sick leave their employer offers. Is it minimum benefits only, or extended sick leave provisions to cover indefinite sickness or isolation requirements due to Covid?
On the insurance front, few homeowners could have predicted the nightmare that befell them on February 22, 2011. Those whose repairs cost more than the EQC cap had years of stress, which impacted mental health and relationships, says Coker. “All of a sudden the small print in insurance contracts became relevant and those who were under-insured or not insured suffered a significant financial setback,” says Coker.
“The earthquake was also a reminder of the randomness of disasters or accidents,” says Coker. It showed the importance of having life, trauma and income protection insurance and understand the limitations of both those policies and ACC cover.
“It is well known that ACC will compensate injured individuals at 80 per cent of their usual income, however it is less well known that there is also an upper ceiling so that they will pay a maximum, currently approximately $100,000,” says Coker.
Big earners with large outgoings found themselves with a shortfall following the earthquakes.
“Even those who get a full 80 per cent of income may find that a 20 per cent shortfall creates a significant financial burden.”
It can be topped up with other insurances.
Some people are more vulnerable to others when an unexpected event hits.
“It is particularly important for these people to have income protection insurance and business continuity insurance and understand the provisions of leases regarding liability to continue to pay rent if they are unable to operate,” he says. “Legal ramifications can be quite complex and ultimately depends on the specific client situation.”
I’ve never forgotten an article I wrote in 2012 about the dire situation a business owner found herself in through no fault of her own.
“EQC and insurance companies were very adept at wearing people down. Producing ‘expert’ reports and forcing clients to get contrary expert reports to support a fairer claim.”
Not everything went against individuals.
“I feel that there was also a great iniquity with some settlements,” says Coker. “Many who were paid out for a total rebuild elected to take their money, buy elsewhere and sell the existing home ‘as is where is’.”
This strategy resulted in a major windfall for many people and runs against the general insurance concept that the insured should be restored to the position that they were in prior to the event but not better off.
Some people have more resilience than others.
“Those who had the resilience to fight generally came out of it better financially but sometimes there was a mental health and/or a relationship cost that should be weighed against that.”