Savings and insurance – the same as home loans and insurance

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At a conference recently I had someone challenge me when I linked savings and insurance together closely.

Wednesday, May 11th 2011, 12:01AM 5 Comments

by Russell Hutchinson

They thought I should say ‘home loans and insurance’ go together. Well, I think that both do, in fact.Think about the similarities. Buying a home with a big mortgage is buying a future dream – you hope to repay the loan and have a freehold place to live in the future. If you die or become disabled that dream is probably lost – unless you can pay off the loan or meet the repayments with your insurance.

Saving for your retirement is similar. To retire with an income you need a large capital sum. If you die or become disabled you won’t be able to save it all up – or help your surviving partner save up for theirs – unless you have insurance that can pay out a lump sum, or make the contributions for you while you are disabled.

Politicians sadly, on both sides of the Tasman, seem to disagree. Our own KiwiSaver legislation forbids the inclusion of insurance. In Australia where it remains legal, they plan to ban commission payments for insurance included in superannuation plans.On the one hand, I think their views are short-sighted. Ensuring that you can achieve your retirement saving goal is something insurance can help with, and if someone has to sell it, then they need to be paid.

But look at it from the politician’s perspective for a moment. They are worried about the perception that their schemes are “too expensive” or “too complicated” and especially wish to avoid any suspicion that they help big fund managers and insurers at the expense of savers.In a sense, they are staying ‘on-mission’ – so should we.

That means it is your duty to keep linking these important issues together and addressing the need outside KiwiSaver.

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