Disaster can strike when you least expect it — just ask a Cantabrian.
But the problem is, once you start thinking along those lines, it’s easy to panic. That’s why insurance is such a difficult one. It should be a money issue, but really, it’s an emotional one.
You want peace of mind, but it gets extremely expensive if you pay for every possible insurance in the hopes of not worrying about anything ever again. And there still might be something you didn’t think of.
So here’s what the experts say should be your protection priorities: people, money, then stuff.
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The problem is, many of us are getting it the wrong way around. Lots of us have contents insurance, far fewer have income insurance.
When you’re thinking about disaster, think about the disasters you couldn’t cope with on your own.
If an earthquake or a fire rips through your home you probably won’t have the cash to rebuild on your own.
What about if you lose your job, but still have mortgage payments, or kids to look after?
About 55,000 New Zealanders lose their main income each year, whether through redundancy, illness, or something else. Yet worryingly, only 15 per cent of us have income insurance.
Your job is probably one of the most valuable things you have. It’s probably your main strategy for paying off the mortgage.
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So you don’t want to be paying for home insurance that protects you from physical risks, while forgetting to protect yourself from the risk of not being able to pay your bills.
But where can you save your pennies?
Well, you don’t necessarily need to be paying for insurance on little things right in front of you such as your phone. In the grand scheme of things, they’re small fry.
You can save yourself insurance payments by “self-insuring”— having enough savings that you can pay in cash if something happens. Ideally, this will save you more money in the long term.
It’s the big things that are more of a worry. Even then, there are times when the big things become smaller things, and are less of a worry.
If the mortgage is paid off, and the kids have flown the coop, you might not need the income protection or life insurance.
After all, do you still have big bills that you’re committed to? Or, if you lost your job, would you now be able to cut back and hold tight until you figure out your next move?
This is why it’s difficult to talk about insurance and give one concrete answer of what people need, and what they don’t.
The insurance question is deeply personal. It’s all about asking what the realistic risks are for you, and what you couldn’t cope with out of pocket.
Anything else could mean you’re paying a lot for peace of mind, with no extra benefit.
- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial adviser, and all information is general in nature. For individual advice, see a financial adviser.
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