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Opinion: Knowing what proportion of risks are covered

If you walk into a shoe shop, pick up a shoe with a scratch on it, and you wouldn't buy it. The problem with insurance is that this is harder to do – not usually life insurance, but more likely the murkier world of disability insurance. You can't always see the scratch until it's too late.

Wednesday, July 16th 2008, 12:06PM

by Russell Hutchinson

Buy a photocopier, and you'll be deluged with information about duty cycles, power consumption, speed, and other more arcane technical data.

Buy a car and you will get all sorts of numbers, probably each meaningless in themselves. The level of carbon consumer per 100 kilometres probably can't be converted into a meaningful measurement of environmental damage by anyone on earth – but even a fairly slow minded chap can compare one car to another on this basis and see which is lower.

The great thing about life cover is that once you've bought it, you can be confident that if you die, you'll be covered. With disability, trauma, or medical, insurance, definitions can reduce the real world level of incidence, to a different level of cover in the insured world.

It would help if the life companies told you more about the expected levels of claims. You can't know exactly how that will work. The client can hardly be expected to make a reasonable guess – the insurer is working with all sorts of possibilities, but they are the ones who are most likely to be able to say.

We should ask them to do so. What proportion of the real world risk is likely to be covered please?

YOUR THOUGHTS? Russell raises some interesting points here. If you have some views or comments please email them to thoughts@goodreturns.co.nz
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