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The value of insurance

I get sick of reading articles in mainstream media about premiums being higher than claims and this being considered a bad thing.

Monday, July 11th 2016, 12:58PM 3 Comments

by Russell Hutchinson

One article about insurance recently pointed out that your premiums could exceed the sum insured eventually paid out. I thought, ‘obviously!’ but they offered this as a kind of breathless discovery indicative of some great evil at work in the insurance industry. Another article in the New Zealand Herald not long ago pointed out that claims had risen but sighed at the fact that ‘…premiums also rose.’ The implication is that the claim is the only way you get value from an insurance policy. This, of course, is silly.

I know it will not shock you, but it seems to be news to many journalists that insurers do have to charge more than they pay out in claims. They have to charge more so they don’t go bust, leaving you with no cover.
My point is that the value of insurance is never just the claim. People do not ‘buy’ a claim. Although the availability of the claim payment is vital, people buy insurance because the moment they sign up they get something. They get peace of mind. Perhaps they get a loan and also get to know their family will get to keep the house should anything bad happen. Or they know that they will be able to buy medical treatment if they need it. Or they feel comfortable being able to travel to a place where they have no entitlement to health services. I could go on. The point is that insurance makes a larger life possible. Larger than would be possible if, say, before you drive a car you had to have sufficient cash in the bank to pay for any accident you might have.

I pay a lot of money every month for my insurance. We have three children so we claim on the medical insurance policy often. But with the major benefits (life, trauma, income protection) I sincerely hope that I will not have the occasion to claim. The peace of mind still made it worth it.

I recently had cause to contemplate that. Taking some scraps out to the compost bin I slipped. The pain exploded and the world seemed to fade. As I waited for the ambulance wondering just how bad the damage was I was comforted by the thought of the insurance. But I didn’t want a pay-out. I wiggled my toes and hoped my back would be okay. As it happens I had four very uncomfortable weeks, but I’m fine, and still glad I didn’t need a pay-out.

I’ve already spent many thousands of dollars and with a family of five I will spend plenty more. Even if I never have to claim I will be happy, especially happy. I will have got lots and lots of value. The value was knowing that money would be there if bad things happen.

Tags: Russell Hutchinson Russell Investments

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Comments from our readers

On 12 July 2016 at 7:56 am Referee said:
These articles just reinforces the fact there is ignorance around life insurance within the public - and indeed the media's knowledge, some of whom do not do their research between they spring into print.

Much more needs to be done by our industry around consumer information.
On 12 July 2016 at 3:06 pm Merlin said:
Very good article Russell now please send it to the mainstream press.
On 25 July 2016 at 1:22 pm kiwifruta said:
It's incredulous that business revenue exceeds expenses. Daylight robbery I tell you!

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