How you can better mitigate risk
Life is a series of calculated risks. The first time we stand up and take a step we risk falling flat in our faces. Every time we drive our cars or even walk on the footpath there is a risk of dying or being disabled. There are risks when you click on emails that they’ll contain ransomware and your computer commandeered until you pay an eye-watering sum of money.
On the other hand, if we don’t take risks we don’t get ahead. A child who never climbs a tree misses out on important development. It helps with physical development, problem solving, self-esteem, confidence, creative thinking, social skills and more.
The point of this is that in many cases, risks can be insured against. But where should we draw the line on what to insure? Unless you have a very high income you can’t cover everything. There are also risks that are almost always excluded from insurance, such as civil war in travel insurance policies.
I’ve never forgotten the couple who posted on Trade Me’s community forums asking how to get income protection cover for a heart attack, because the husband had just had one. Most insurers would laugh him out the door. Or, if he was lucky enough to get cover there would be a lengthy stand down or the premiums would be so outrageously high that he couldn’t afford them.
Some people only get medical cover when they travel because they can afford to replace their baggage. But very few people could afford to rebuild their houses without insurance.
It’s not always a monetary equation. Peace of mind is huge with insurance. If you’re someone who worries what might happen then insurance is a major anti-anxiety pill.
Susan Taylor chief executive of Financial Services Complaints Limited says that what you need versus what you can afford comes down to choosing which risks you can afford to insure or can’t risk not insuring and which risks you can live with.
Taylor says she observes that Kiwis are reasonably quick to buy life insurance, but they don’t take out income protection, mortgage protection, and health insurance. Most of us are more likely to suffer serious illness that stops us working than dropping dead.
Insurance brokers/advisers can help with analysing your own situation and help you prioritise your needs.
If you’re 35 with young children, for example, your need for life insurance cover may be greater than if you’re 55, your house is paid off and those kids have flown the nest.
We are very underinsured as a country, says Katrina Shanks, chief executive of Financial Advice NZ. Especially in the case of insurance, trauma, permanent disability and income protection cover. Even some people’s homes aren’t covered and too many Kiwis travel with no insurance.
Shanks says there are two pillars to risk — protection with insurance and prevention.
“As a country we are moving [towards] thinking prevention is better than cure.
“For example, we know we need to exercise. Exercise in effect reduces our for health outcomes.”
In addition, companies such as NIB encourage you to live a more healthy lifestyle. It offers $300 towards your gym membership or sports/fitness equipment if you don’t make a claim for two years on your hospital cover.
We know that locking our homes, cars and bicycles, installing a home alarm system, or avoiding dodgy areas after dark when travelling make us less likely to lose property or be robbed. Increasingly there are high-tech devices within our reach that allow us to track our phones or vehicles when stolen.
Some of these devices are useful in their own right to prevent bad things happening, but also reduce what we pay for our insurance. You may get a discount for having your home or car alarmed.
where should we draw the line on what to insure?