Why is insurance necessary?

Kiwis don’t seem to be fans of insurance, well life insurance anyway. Even though the concept is the same, kiwis tend to be open to house, car and contents cover than life cover. I think it has something to do with being able to touch the car and visualise it being damaged than being able to visualise the impact of cancer.

Insurance is to reduce loss. For this we pay a premium which will be much lower than what the potential payout is, and we pool this with everyone else doing the same thing. We work on the knowledge that we know that most of us won’t have a claim but the ones who will be protected, and if it’s our turn we want the same result.

So what is the potential loss? Well if we are talking about your income, it could be millions. If you are 30, and earn 50K a year, then assuming no payrise ever, your total income to age 65 is 1.75 million dollars. Tax takes a chunk of that, but it’s at least 1M dollars that you would lose if you were too sick to work again.

Insurance would cover this for you. how much you pay is based on your age, the risk of your job and how much cover you need, but generally for a proper claim you will never pay as much premium as you will get in a claim.

But ideally we will never claim, no one feels bad that they have not had their car written off so have not had an insurance payout, but for some reason people feel cheated if they have not claimed on life cover etc. this is good, otherwise you might be dead!

Plan A is that we never need the cover, but if we do, Insurance is the best Plan B you will ever have. Sacrificing a small part of your income for the protection of the rest of it, is a good bargain in my opinion.

The key is to get good advice and get the right covers for you and only keep them as long as you need them.

For good advice, the DUX team can help you out.

Alan Borthwick