Unravelling the insurance misconception
Written by Paul Dodd on July 20, 2015.
Protecting your assets is the foundation of all financial planning. Insurance protection in the form of health insurance, life insurance, critical illness cover and income protection insurance (collectively referred to as peace of mind insurance) is critical because without them a family is vulnerable to the potentially catastrophic financial consequences of unforeseen life events such as an accident, illness or death.
In spite of this, an estimated 16.9% of the US population do not have any health insurance and 39% of Americans are without life insurance. Even fewer have critical illness cover and income protection despite the fact that experts estimate that critical illness policies will be subject to a claim than life insurance.
Death and money are taboo subjects for many of us and this may be a contributing factor to these statistics, but there are several other common reasons why people fail to put peace of mind cover in place. One is that they believe that peace of mind insurance is too expensive. One survey revealed that consumers think that life insurance costs three times more than it actually does. If you are putting off taking out insurance because of the cost, set aside your assumptions and find out the reality. It will probably be less expensive than you expect and the peace of mind it will give you will certainly be well worth the outlay.
Secondly, many people don’t see this type of insurance as a priority. Once their mortgage and living costs are covered most people prioritise pensions and investments far above peace of mind insurance. Of course your retirement fund is important, but your pension is not going to pay the mortgage if something were to happen to prevent you working. How would your family survive if you got cancer (sadly you have a one in three chance)? Who would pay the bills if, god forbid, you were to meet an untimely end? It may surprise you that the average age of a critical illness claim in Hong Kong is just 47 years old, just think about how valuable that support was for those families. Financial planning is a question of balancing your current and future needs, something which you may wish to discuss with a professional financial advisor.
A lack of understanding can equally discourage some consumers from taking out cover. Confusing language, unfamiliar jargon and lengthy terms and conditions can all be incredibly offputting, and not just for those without insurance. In one survey, 36% of those who had life insurance policies didn’t understand them! Just another reason to find a trusted professional who can explain your requirements and policies to you in as much detail as you require.
Finally, there is a general distrust of the industry. The media is full of stories of insurers failing to pay out on claims or mis-selling policies. Last year Lloyds Bank in the UK was fined £28mn for mis-selling. It transpired that their staff were threatened with demotion if they failed to reach targets on selling insurance products and resorted to desperate measures. One man even purchased policies for himself and his wife to make up the numbers. You should always make sure you only purchase insurance products which carefully match your needs and avoid working with anyone who pressurises you into taking cover you are unsure about.
None of us can know what is round the corner. What is certain is that you and your earning potential are worth insuring much, much more than your car or even your home. The Association of British Insurers revealed that in 2013 270 families a day received payouts on life, critical illness or income protection policies. This money played a vital role in protecting them against financial difficulties at times of immense stress.
If you wish to protect your family and would like more information on this subject, you can download a comprehensive consumer guide to peace of mind insurance. Ths excellent guide will answer any questions you may have, outline all the issues you should be aware of and assist you in ensuring you and your family have the right insurance protection.