Underinsurance is a growing concern in New Zealand. Last year the Financial Services Council (FSC) released its findings on New Zealander’s attitudes towards financial risk. The study done by FSC is called “Gambling with life – the problem of underinsurance” focusing on the reasons behind the high levels of underinsurance in New Zealand and the potential risks Kiwis don’t realise they are exposed to. Here are a few insights that we found interesting.
What is underinsurance?
An insurance policy whether it is life, health or trauma insurance protects the needs of an individual or their family in the event of loss of income due to injury, illness or in some cases, death. Underinsurance occurs when someone does not have insurance to cover themselves or their household. Underinsurance can also happen when the amount of cover taken out by a policyholder is not enough to cover the financial commitments of the policyholder following illness or injury.
Why are New Zealanders underinsured?
Most New Zealanders are not covered properly for the things they would actually need coverage for at claim time. The study showed that although New Zealanders understand the importance of insurance they are still inadequately covered. Affordability, priority, self-insurance and complexity are some of the main reasons why Kiwis are underinsured.
The survey concluded that under 40% of individuals surveyed cited an inability to afford insurance premiums with a quarter saying that life insurance in particular is not a priority. 17% said that they do not feel like life insurance represented value for money. The cause of low coverage rates for news Zealander’s can be explained by the reliance on the Government and ACC.
The study concluded that “many Kiwis aren’t protecting ‘me’ and don’t have savings for a rainy day and are still reliant on others if something goes wrong than those who haven’t”.
Consequences of underinsurance
Underinsurance could have serious consequences in terms of an individual’s future and their ability to meet ongoing financial commitments following an illness of injury which could impact their lifestyle. The FSC has worked out what the five top tips are to stay on top of your insurance needs:
1. Consider how you would cover you finances if you were to lose your job or became seriously ill. How would you support your family if in the worst case you were to pass away?
2. Review your insurance cover regularly – as life changes, so will your insurance needs. This may not always lead to an increase in your insurances, but it is the time to revisit why you first first took out cover.
3. Review your debt and savings and try to keep some savings aside.
4. Speak to your provider or adviser and get a view of your current and future financial needs.
5. Take action now – don’t leave it until it is too late.
Peace of mind is paramount when purchasing insurance, the risk of losing income is not considered by the majority of New Zealanders. Government support and ACC is relied upon heavily by kiwis however it does not give you the full support you or your family may need come claim time. If you purchase insurance later in life you will be paying a higher premium than if you had your insurance secured when you were younger. As you age your risk levels increase which is why it is so important to get the right cover in place early. If you want to know what cover is right to protect you and your family, please don’t hesitate to contact us. We want to help make sure you are not within the percentage of underinsured New Zealanders.