Is insurance worth it?

When times are hard and you're struggling to pay the essential bills and feed the whānau, insurance premiums may seem like another financial burden that you can live without. But is not having insurance worth the risk?

The most important things to consider are what do you really need to insure, how much cover do you need and what you can live without? Insurance isn't 'one size fits all' – everyone's needs are different dependent on your personal situation and priorities.

Simply put, insurance is your means of protection against financial loss due to the unexpected happening such as car accidents, house fires, earthquakes, tsunami, illness, accidents or death.

When considering insurance there are usually two areas to think about: personal and property. Personal insurances include life, income, health, trauma, disability and accident. Property insurances are for things like your house, possessions and car.

The starting point for making insurance-related decisions is weighing up the risk of not having insurance cover versus the cost of being insured. For example, imagine the contents in your home are worth say $100,000. Contents include everything from clothes, furniture and appliances to toys, CDs and sports gear. An insurance premium to cover this amount might be between $750 and $1000 a year. In the event of a fire or an earthquake you might lose everything you own. Without insurance cover, you would be faced with replacing everything yourself. If you are not in a position to do this then you really need to look at insurance options – consider it money well spent. If you are renting, you still need contents insurance and it's really important to make sure that your cover protects you against damage to your landlord's property just in case you find yourself liable in the event of a disaster occurring.

If you own a home or have high debt levels, you should consider getting life insurance. Dying or serious illness are things no one really likes to think about, but the reality is, it is inevitable and for some of us, it will happen well before it should. It does pay to be prepared so that your whānau are not left with a mortgage, huge debt and funeral costs. However, you probably don't need life insurance if you have no debt and no one dependent on you who would suffer financially if you died.

Getting the types and levels of cover right for you is really important. There will be a number of things to consider and within each type of insurance there will be a variety of options. Essentially insurance is a highly specialist subject therefore it is best to seek some professional advice from an insurance or financial advisor before making any decisions about what you do and don't need cover for. The Retirement Commission's Sorted website www.sorted. org.nz provides a comprehensive overview on insurance, complete with suggestions of where to go for help, that is well worth checking out. It also has an insurance calculator that will provide you with an indication of cost and types of insurance. Sorted's eight rules of insurance are:

  1. You do not need to be insured against everything – sometimes it's simply better to live with a risk than a premium. As a general rule, you should only insure things you can't afford to lose or replace yourself.
  2. Think about sharing the risk between you and your insurer – if you agree to an excess (where you pay for the first, say $500 of a claim), you can cut costs while keeping needed protection for major claims.
  3. If you have a car, you should at least have third party insurance – this covers you for any damage you cause to someone else's car or property. It's generally a really cheap option and in the event of having an accident that's your fault it will save you having a huge debt you have to pay off.
  4. If you own your own home, you should have home insurance. Your home is likely to be the single biggest asset you will own and one disaster could see it lose all value – you would be left with just the land and still the mortgage to pay.
  5. Re-consider your insurance regularly. As your age and circumstances change, reconsider the amount, and type of insurance you need.
  6. Use reputable companies. If someone tries to sell you insurance, check out their background and that of the company issuing the policy.
  7. Compare prices. Always compare any policy with at least two similar ones provided by competing insurers – premiums may be quite different. Even if they are similar, there can be big differences in the cover provided.
  8. Get it in writing. If you get a quote for insurance over the phone, always ask for a written copy of the policy to be sent to you so that you can double check.

And if you own a business, or are thinking about setting one up, insurance is again an important consideration and essential to discuss with a qualified insurance advisor. Business insurance policies insure against the loss of property, human resources, business liabilities and business overheads. These include public liability, indemnity, overheads and staff losses.