Understanding Insurance: Why Is It Important?
Life is all about risk. Every day you evaluate the risks in your life – deciding which ones are worth taking and which are best avoided.
For risks with unavoidable costs, insurance is a way of transferring the cost to someone else to avoid taking it on yourself.
When it comes to understanding insurance, people are generally familiar with house, contents, and vehicle insurance, while personal cover remains unfamiliar territory. House, contents, and vehicle insurance policies protect something tangible if something bad happens to it. Personal cover is the same principle, but it covers something even more important: You.
As expert insurance advisors with extensive insurance experience, we offer a short rundown of why insurance is important and how insurance advisors can help.
Policies that protect 'you' rather than 'things’
Life insurance
Life insurance pays out a lump sum to your estate or the owner of your policy if you were to die. This insurance can help your family financially cope with the future without the income stream and support they were expecting you to provide for years to come.
Income protection or mortgage and rent cover
Income protection or mortgage and rent cover pay out a set amount each month if you cannot work due to illness. In some accident scenarios, income protection can also be used to top-up the amount ACC pays you.
Trauma policies
Trauma policies pay out a lump sum if you suffer a specified type of serious health condition or injury.
Health insurance
Health insurance helps to defray the cost of seeking medical and other health treatments and usually means your medical needs can be met without a lengthy public waiting list.
These policies are often necessarily complex because they deal with complex medical conditions and significant sums of money. But they can make the difference between suffering serious financial hardship and life carrying on close to normal despite a major event – at least concerning your bank account.
How insurance advisers help and what to expect
A financial adviser can help you understand what you need, and which policies are best for your circumstances. When it comes to personal insurance, one size does not fit all.
Insurance has many benefits, and an insurance adviser can help you set goals for your future and protect your family from unforeseen circumstances. For example, your insurance adviser may ask you the following:
What’s important to you?
What are your goals for the future?
What are you saving for?
What would you want to leave for your family if you were not around?
Would you want to be able to leave your family totally debt free, or would you be happy just to reduce the debt a bit?
What debt and other obligations do you have?
Who would struggle if you were not earning an income?
What might you not be able to pay for?
How could you cope if you were off work for a period?
Do you have a financial buffer to call on, or would you be in trouble?
How quickly would things get tricky? (Income protection policies can be cheaper if you can afford to deal with a longer stand-down period before payouts begin).
What are your plans for the future?
Do you expect to grow your family?
What’s your work situation? (e.g., are you self-employed – and do you need cover for your business? Or are you an employee?)
How much do you earn?
What budget do you have?
If you can’t afford all the protection types that could help you, what do you hold as most important? (Assessing your insurance priorities is a vital step. You should understand clearly your risks and what policies you choose to commit to).
Do you have any insurance in place already?
Are you happy with how that’s performing?
Have you had any claims in the past?
What health conditions do you already have?
These details must be disclosed at application time to ensure you are covered in the way you expect to be. Sometimes even symptoms can be treated as a sign of something you should have revealed.
While you may wish not to think about these scenarios, doing so is essential. Insurance could give you peace of mind and a financial buffer to call upon if the worst happens.
For example, if you’re a business owner and self-employed, a benefit of insurance is that it can help cover any claims you may need to submit in the future. Businesses present many risks, and just like a home, you want to protect your source of income. An insurance advisor can guide you everything step of the way using their expertise and ultimately save you time and money.
Getting the detail right for you
While insurance can be hard to navigate if you’re not an expert, the team at Compound Wealth are here to help. We can make things easy to understand, so you can confidently know your financial needs without worrying about whether you and your family are protected from risk. If you’re looking for insurance advice and would like to speak to a qualified Insurance Adviser about your insurance requirements, please schedule an appointment below.