Financial planning should be the natural friend of good insurance coverage
Sooner or later, reduced liabilities and increased capital must replace insurance.
Monday, August 20th 2018, 12:39PM 
1 Comment
by Russell Hutchinson
I had a friend who said that the trick to sailing in all conditions around the world was to know that sometime your boat would sink. He felt that keeping that fact at the forefront of his mind kept him prepared.
Well, sooner or later, you will not be able to cover your risks with insurance. There are some edge-case exceptions, but this will probably be the case for most customers. Being realistic about it, and not trying to fruitlessly imagine that most people can keep their full suite of insurance to the end of their lives.
Although this sounds a bit backwards, that fact should actually make it easier for consumers to commit to sufficient and effective cover today. Sure, there is a bit of expenditure here – but it won’t be forever – your premiums will remain high only so long as you have the need for the cover.
What reduces the need for cover? For most people it is a combination of things, both a reduction in their liabilities and an increase in their personal wealth. The milestone events for most people in their financial lives that reduce insured needs are:
- Children leaving home
- Children complete university
- Repayment of business debt
- Repayment of the home loan
- First retirement
- Second retirement
That covers the category ‘reduction in liabilities’ although it does seem a bit mean to refer to your kids leaving home as cold-heartedly as that.
But what about personal wealth. So KiwiSaver and other retirement saving is real. So is equity in rental properties and businesses, and other investments. Keeping a close eye on such things, and showing clients how you intend to keep taking them into account in your calculations, helps them feel comfortable that a genuine commitment to the ‘right’ amount is being made not the ‘largest’ amount. It’s the kind of commitment that really shows through. It’s the kind of commitment that earns a response where the customer feels more confident and commits to work with you in your process.
They may be even happier if they can see you working towards helping them with their wider financial goals: meaning that you are both keen to see them fully insured, but also keen to see them in the financial position that they don’t require it.
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However, taking insurance cover at the expense of wealth creation is also a hiding to nowhere too. As premiums will always rise and there is no guarantee you won't have that event to create the lotto ticket 'win'
The cure for life insurance is a wealth creation plan. And any risk adviser that isn't raising this with their clients isn't doing their clients any favours.
It's in a similar league to here's a credit card, go for it and not explaining how it works, and then extending their limit when they reach it.