Life, health, wealth: Insuring your other assets
Thu Nov. 12th 2015
No one wants to think about dying, becoming sick or disabled, or losing their job, but when it comes to insurance, ignoring the problem doesn't make it go away.
Unfortunately, many New Zealanders don't take out the insurance they need until it's too late. A recent survey by the Financial Services Council found that just 57% of kiwis have life insurance, and barely 20% have income protection. In contrast, more than 95% of cars and homes are insured.
Not taking out life or income protection is one mistake, but there are other, less obvious, insurance errors.
Here are the five most common mistakes when it comes to life and income insurance:
Ignoring the issue
Not taking out life, disability, or income protection is a big one. Of course, nobody thinks they're going to die suddenly or lose their job, but if the worst does happen, it's better for your family to be protected. If you wait until you're terminally ill or laid off, you probably won't be able to get cover at all.
Procrastination doesn't pay
Putting off getting insurance is easy – applying can be tedious and confusing, and it's hardly the most satisfying way to spend your money. But procrastination can be expensive. If you keep putting off getting life insurance as you age, you can find your options for insurance decrease - while your premiums increase.
Too little, too late
If you have life insurance, you're doing ok – but that's not all there is to it. Many people don't have enough cover to protect their family if they pass away. It's not pleasant to think about, but if you or your partner died, would the other one be able to survive on your insurance payout?
Your cover should at least pay the mortgage, and should probably go further. Even if your partner has a high income, they may need to change jobs or work part time to cover childcare. The last thing you need after the death of a loved one is financial strain – or worse, losing your home.
Health and wealth
Life insurance is just one piece of the personal insurance puzzle. You're actually more likely to become sick or disabled than to die unexpectedly, so it's important to think about a range of scenarios (even if they're depressing).
Disability and income protection are both about protecting you and your family if you're unable to work. You can also get various add-ons with insurance policies, like trauma cover and injury cover. When choosing cover, you should think about the mortgage again – will payments cover it? What about bills, food, and childcare costs?
In many families, the breadwinner or main household earner is the only one with life or disability cover. But neglecting to cover the other partner is a mistake. If that partner becomes sick or disabled, you may need extra cash to pay for a carer, time off work for childcare. The same applies if a stay at home parent or lower earning partner dies – circumstances will change, and life insurance can make these changes much easier.
Review and renew
Insurance isn't set and forget. You need to keep looking at your policies and updating them as your circumstances change. Life events like marriage, birth, and buying a home change your insurance needs. That could mean you need more cover or less.
For example, young, single, childless people will need less cover than people with small children and big mortgages. But then, older people who have paid off the mortgage and have no children at home may need less.
Comparing insurance quotes isn't easy. Many people choose based on price, or just go with whomever their bank recommends. Price matters, of course, but all insurance isn't created equal, so it's important to get the right cover as well. If you don't understand what you're looking at, you may not be able to get cover to suit your needs.
Talking to an insurance broker - like Cave Financial - can make this easier. We're experts, so we understand the technical jargon and the differences between insurers. We'll get to know you and your circumstances so you can get the personal insurance you need - and avoid making expensive mistakes.
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