by Nick Stewart (CEO and Financial Adviser at Stewart Group)
Some people may be looking at reducing their insurance cover as the cost of living continues to get steeper.
It’s understandable to want to trim the fat where you can. Food prices were up 10.7% higher in November this year than in November 2021.[i] Forget caviar and champagne - cheddar is practically a luxury good at this point.
Add to that the recent 75bp OCR hike and consequent rise in mortgage rates, and it’s all to easy to understand that big bills are making life very difficult for a lot of people at the moment.
However, coming off the back of what feels like an endless slew of unprecedented times... now is not the time to ditch your insurance if you can help it.
We don’t know what the future brings. We can speculate, but even an educated guess doesn’t take into account war, pandemics or the increasing impact of natural disasters. Tomorrow can be full of change and challenge. Or it could be just another day.
As human beings, we tend to thing bad things won’t happen to us. We have an inherent bias that tells us, “I’m the exception to that rule.” So when budgets get tight and it becomes harder to justify extraneous spending, it’s tempting to think of your insurance cover as just that – surplus to your core needs.
If the worst were to happen tomorrow – a flood, a fire, a health scare, or the death of a loved one – would you have enough cash to protect yourself and your family during a difficult time?
This is the most basic function of insurance. It’s there in case you need it, to protect what’s important to you. The idea of insurance contracts dates back as far as 4000-3000BCE, where merchants in ancient Babylon where merchants used bottomry contracts (based on whether a ship reached port or was lost at sea) as a form of marine insurance.[ii]
In modern times, the ship out to sea is more metaphorical than literal for most of us. The concept is essentially the same though... if you’re counting on fine weather and fair sailing for the rest of your days, you’re not going to easily recover from an unexpected storm.
Even if you had the money to cover an event, it’s still going to mean a serious setback as your hard-earned money (or your family’s money, as may happen in the case of a loved one becoming ill or passing away) goes to keeping you afloat during a turbulent time.
A survey from the Financial Services Council found that around 70% of New Zealanders were underinsured. Only 11% had income protection, 14% had permanent disability insurance, and a mere 18% had cover for trauma or critical illness. The FSC also found that almost 9 in 10 Kiwis would struggle if they lost their jobs, 8 in 10 would struggle to support family if they were in an accident resulting in permanent disability, and 8 in 10 would have financial difficulties in the face of trauma or critical illness leaving them unable to work.[iii]
Again, in the times we’re in... Health, income and your family’s wellbeing are obviously always a priority, but the last few years have thrown the reality of what might happen into sharp relief.
Add to that the increasing impact of natural events like storms, flooding, fires, and drought – things that can have a huge personal impact as well as slamming your livelihood – and you’ll see there’s plenty to protect against.
I don’t mean for this to be all doom and gloom. But there’s a difference between positivity and sticking your head in the sand, hoping everything will turn out ok, if you have the means to take preventative action.
The rise in premiums, on top of other costs, makes full cover daunting for some. But if you can, do. It’ll be worth it when you don’t have to deal with financial stress on top of the actual event. And if you can’t – look at what you can cover, and what your excess is. We have a strong insurance market in New Zealand with an array of products and support on offer for the different phases and challenges of your life.
Risk and Insurance covers enable us to take on opportunities to get ahead in our lives with a reduced risk should there be a negative event or outcome along the way. They enable us to achieve more with confidence knowing we are safeguarded.
Like all things financial, you want to make sure you have a plan that takes into account your current situation, any dependents, and your future. If you’re not sure where to start or would like a second opinion, sitting down for a chat with trusted risk insurance professionals is always a good first step.
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this show, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
