And It Is Centered Near You
A common complaint after a life insurance claim is, “it wasn’t enough”. It’s not that people are greedy, they just undervalue themselves and the financial contribution they make to the family. They forget about the time spent gardening, looking after children, cleaning the house and DIY repairs. All their time and skills that aren’t put into a family budget are easily overlooked.
At least those that complain had some insurance and that will go a long way to covering their financial losses and protecting them from New Zealand’s insurance black hole.
This black hole centres on the 43% of New Zealanders that don’t have any life insurance at all.
In 2013 it was estimated that the shortfall, just in Life Insurance, across New Zealand was over $195 BILLION. That amount will almost certainly be higher now as house prices and indebtedness grows.
I Don’t Need Life Insurance.
There are some of us that might be fine without any Life Insurance policy. Those that have no-one financially dependent on them and with enough saved for their funeral for example. There is certainly a case there to cut Life Insurance out. Before getting smug though Life insurance is only a small part of the black hole.
For the people with no dependents it is essential that they will need to look after their salary. After all who’ll look after them if they can’t work? Not that this should exclude those with loved ones, it is more likely that there will be a time when a person can’t work through illness or injury than they just drop dead.
The statistics for income protection though are frightening, only 1 in 5 New Zealanders have any at all. This is worrying, especially as the average long term sickness is 15 months and most families don’t have anywhere near that sort of money in reserve.
Is that all?
Most of the black hole is made up of disability and trauma insurance. This comes in at over twice that of Life Insurance. If you think about it being sick can be costly, extra medical bills, additional recovery time, non-funded treatments, wait times for income protection and it all adds up.
The biggest amount though is reserved for being permanently disabled and unable to work. This can be far more expensive to a family than a death. Even if there is income protection in place there may also be a need for a partner to reduce their work commitments, a nurse to visit, a cleaner, remodelling or selling a home, a mobility vehicle, increased health bills, the list is endless. This is why the biggest proportion of the black hole is reserved for disability.
So who will pick up the tab?
When there is no insurance generally it is the family that shoulders most of the burden. Whether it be a partner, children or parents that rally round, but this is far from ideal. The other option is, of course, the taxpayer. Sadly, despite what some in the media would us believe, life on the benefit is far from comfortable.
So why are so many underinsured?
The answer to that question is complicated and I have dealt with the main reasons for avoiding life insurance in this blog.
The biggest reason for avoiding income protection is different though. Where people accept death is innevitable there is the perception that long term absence won’t happen. This is combined with the belief that if it does happen it is likely to be an accident, so ACC will pay. This is far from the truth as the Wellness in the Workplace study attributed about 18% of absences to injury.
Do you think now might be a good time to speak to an adviser then?