Most people think insurance is about having your car replaced when it’s stolen, getting a big payday when you fall sick, or what happens after you’ve passed away.

Yes, it can be all that – but insurance is also about managing your financial risk, says Massey University’s Dr Mike Naylor.

His department, the School of Economics and Finance, found that Kiwis are among the most underinsured people in the OECD countries, when it did a study for the Financial Services Council. And that’s a worry.

“Insufficient insurance means there is insufficient protection against adverse financial events,” the study said.

As a nation, we’re good at insuring possessions, but not ourselves. The study found that people will be happy to insure a $15,000 car, but often fail to insure their earnings potential, which could add up to several million dollars.

For example, your investment strategy could be wiped out overnight by illness or injury, says Naylor.

“Everyone thinks you’ll work till you’re 65, you’ll save a certain amount of money for retirement. And yes, a number of people do.

“But some get to fifty, have a stroke – and they’ll never work again. Their whole investment plans are gone. You have to sit down and work through a number of scenarios.

“If your back is broken, and you have to live in bed, what would you do? How would your life continue?”

The FSC/Massey survey showed that New Zealanders have low levels of personal risk insurance, especially income, trauma, and total and permanent disability insurance. In fact, disability is statistically more likely than death in their working lifetime, says Naylor.

“Our larger finding was that we have high rates of mis-insurance – people’s sums do not correspond to needs. This particularly applies to life insurance. Our life cover rates are appropriate, but cover sums do not relate to needs.”

This puts more costs on our social welfare and health systems, costing us all more in taxes.

Too young to insure?

There’s a real problem with young people not understanding the value of life insurance, says Kiwibank Digital Delivery Analyst Callum McPhail. He was part of a Kiwibank FinTech Accelerator team exploring the reasons why people his age, in their 20s and 30s, don’t get insurance.

The project expected to find that younger customers were finding issues with online forms, says McPhail. But no.

“The problem was even before they got to the application,” he says. “There was a breakdown in their not seeing a need for insurance – or knowing that they had a need for it, but never doing anything about it. They never found the time.”

Those from 25 to 33 thought insurance was for older people, not for them.

Digging deeper, many young people thought if they were injured and couldn’t work, ACC, social welfare, and the ‘Bank of Mum and Dad’ would care for them. Others didn’t trust insurance companies to keep their word.

Some already had health issues and thought they’d be declined. Some thought they wanted $1 million worth of cover when they only needed $100,000.

“But while you’re young, the payments are very low,” says McPhail. “Your risk of dying is much lower. The benefit of going in now is that if you develop any medical conditions, you’re covered, but if you wait until you’re thirty to thirty-five, and a medical condition knocks you out, you’re not going to be covered for it.”

The team also found, for young customers, that it isn’t about online forms – many people really need to address their concerns by talking to an expert.

It’s your earnings that count

Insurance pioneer Naomi Ballantyne says people of all ages misunderstand insurance.

“It’s not about dying; it’s about living,” she says. “It’s all about protecting income. Insurance is to provide this security if something affects your ability to generate an income.

“It gets you to the same place after your ability to earn an income has been interrupted. The goal is to put you back to where you would have been.”

She says if you’re injured or ill and can’t work, your partner may be caring for you and can’t work either. There are increased costs, you can’t take your family on holidays and you can’t afford to put your children through university.

She says: “Givealittle is full of people who didn’t do anything to prepare. The others you don’t hear about – they had insurance, and it’s done the thing it was meant to do.”

McPhail agrees. The Givealittle community pitched in to help one young man financially.

“But the knock-on effect from that was that he couldn’t be seen out having a glass of wine, because people would say, ‘I thought they were in hardship’.”

Naylor says personal risk insurance is more than buying insurance – it’s about taking steps to lower your risk and better survive an adverse event.

No one likes to talk about death or disability, says Naylor, and this means they’re not protecting themselves, their families and their investments. But their cars are all right.

TRAUMA INSURANCE

Trauma insurance policies pay a sum when you’re diagnosed with a medical condition, or have an accident. They don’t cover treatment, but cover costs like rehabilitation expenses or a drop in income. Most policies cover only major conditions, like heart attacks, cancer, stroke, coronary artery bypass surgery, and severe injuries leaving you paralysed, blind, or with severe burns. These policies aren’t linked to income, so they’re useful for non-earners instead of income protection, and to complement ACC cover.

It was just a routine check-up

At 24, insurance agent Ali Aliev never thought he’d be calling on the insurance cover he sells to his clients.

Like nearly all young men in their early 20s, Aliev was convinced he was bullet-proof. However, he wanted to lead by example, so he bought Trauma Cover, Household Expenses, and Private Medical Cover when he started in the business two years ago.

Fit and healthy, Aliev went home to Uzbekistan for Christmas last year, where his mother insisted he should have a medical check-up. He was clear on all the screening tests, but then his cold hands made the ultrasound specialist suspicious.

“Ali, are your hands always this cold?”

“I don’t know, I haven’t really noticed,” he replied.

The specialist felt Aliev’s throat and then passed the ultrasound over his neck to discover thyroid nodules. He had papillary thyroid cancer, which had spread to nearby lymph nodes, which needed to be surgically removed.

“I was shocked,” says Aliev, “but then my mind immediately wanted to know, what is going to be the fastest way to recover from this so I can get back to my normal life?”

He researched his options. New Zealand was effectively shut for Christmas, so he opted to travel to South Korea where he could be treated by a world-recognised expert in thyroid cancer, and he could get his surgery right away.

He came home to New Zealand in January for the next part of his treatment, radioactive iodine, continuing to work around the medical appointments.

Aliev says he’s always been convinced of the benefits of insurance, “but now I’ve become an example myself, I’m passionate to my very core about the value I bring to my customers.

“I’m determined to ensure that consumers, even the very young, appreciate that while the chances of something like this happening to them might be slim, the impact of having some protection in place if it does happen can determine the extent that your life is interrupted by it.”

LIFE INSURANCE

If you pass away, life insurance will pay a sum of money to the beneficiary of your policy. Depending on the contract, it may also pay a sum if you are diagnosed with a terminal or critical illness. ‘Term life’ covers you for a specified term of years. ‘Permanent life’ is an older product, which remained in force until the policy matured and gave you a cash payout. It’s now rare.

Cheating death in Jordan

Motoring website editor Alistair Sloane had always paid into a life insurance policy, with his wife and son in mind, but he never thought he’d get close to using it.

“A few years ago, I was in Paris on a car-review trip when I started feeling dodgy. When we got to Jordan, it had turned really ugly, but I thought it was just a tummy bug.

“Luckily, the doctor with us on the trip recognised it as a heart virus and he really saved my life. He gave me two pills costing $US250 each, which stopped the virus dead.”

When Sloane returned to New Zealand, he recovered quickly. But when he was walking his dog in the park one day, he had chest pains.

“The heart specialist identified straight away that I’d had a heart virus. He put in a stent and my heart returned to normal, but I was really exhausted for a while.

“Then a few years later, when I was feeling good again, I went on a walking tour in Spain. When I got back, the surgeon checked me out and said I’d overdone it.”

This time, the specialist was saying Sloane needed a coronary bypass. “Luckily, I’m pretty fit, so instead, I had two more stents put in. Now I’m good as gold. Luckily, I’m still here and I didn’t need my life insurance policy to pay out.”

TOTAL AND PERMANENT DISABILITY INSURANCE (TPD)

Total and Permanent Disability policies pay out if you’re so disabled that you’re unlikely to ever be able to work at your occupation again. Normally they don’t pay out for partial disability. These policies tend to have low premiums, as the rate of permanent total disability is low. They’re often linked to life insurance, as an early payout of the life sum. They’re useful for covering the high costs of caring for a totally disabled family member.

When the world went dark

Lawyer Kiran Valabh was just 24 and in his second year studying at university when he first started having eye problems. He had been diagnosed with the autoimmune disease lupus when he was 15.

Lupus can affect many organs in the body. In his case, it attacked his kidneys.

“They put me on me on intensive medication to treat my kidneys and this caused me eye problems called toxoplasmosis,” he recalls.

“It was quite sudden. After a few months, both retinas detached from my eyes. Luckily, a surgeon was able to reattach the retina to the back of one eye, because it was still attached to the optic nerve.”

He was able to return to his studies, although his vision was impaired.

“But I continued to read, and that put a strain on my eyes. It was a rocky road for months, until in mid-1994, I lost practically all my sight. There was still some inflammation in the eyes, and in time, I lost the good eye and I became legally blind.”

Some time later, he noticed some light perception in one eye, and had a cataract removed from it. He used his health insurance to have the eye operated on.

It took him a year longer, but Valabh finished his degree and went on to work as a lawyer, mainly on projects.

Later, the damage to his kidneys led to a transplant, within the public health system.

Now 48, he still has light perception in one eye, but doesn’t feel confident to work full time. However he says, “I’m pretty good at navigating, I get around. I do things like reading and work, just differently from sighted folk.”

He says he was grateful for the options health insurance gave him, but he’d never considered total and permanent disability insurance, which may have paid out in his circumstances.

“It’s academic now . . . if I could tell the future, of course I would have had it.”

DISABILITY INCOME INSURANCE/INCOME PROTECTION

Income protection insurance pays out if you’re unable to work due to ill health. Payouts are either a fixed monthly sum or a percentage of recent income, usually up to 75 per cent. There’s usually a waiting period and then the benefits are paid until you’re ruled able to return to work. These policies aren’t available to non-earners.

What about my daughter?

Lesley* was part of the insurance survey Callum McPhail did for Kiwibank. When they met, she was a single parent with two adult children in Australia, and was working to support a younger daughter at home.

She said she regretted not having got income protection insurance when she was younger, because it had become too expensive due to her age, and recent health issues.

She told McPhail another reason was she didn’t want her children to fight about “who would get what” in case of any payout.

Says McPhail: “Then she told me there was something that kept her awake at night: ‘My daughter has severe autism and may never be able to work’.”

It was an eye-opener, says McPhail. It's the people who really need insurance who often decide against getting it.
* Not her real name.

HOUSE INSURANCE

House insurance may cover repairs or rebuilding of your home up to your sum insured; full replacement house insurance for fire (aside from natural disasters); fixtures and fittings, decks, garages, fences, and most driveways; temporary accommodation if your house is too badly damaged to live in; and keys, locks, and remote door-access.

“What’s that smoke?”

Hairdresser Courtney Low will never forget the day her grandmother’s kitchen caught fire. It all happened so fast.

“I was at Nana’s house with some friends,” she recalls. The young people were all in the living room, when Low’s cousin suggested she put on a pot of oil to cook up some chips.

“I said, ‘I’ll put them on, but you can finish them’, because I was getting ready for work.

“I’d never put on an oil pot before. Not knowing, I set it going with the lid on it and we just forgot about it.”

Then Low’s cousin called out: “What’s that smoke coming out of the kitchen?”

“I got up and rushed into the kitchen to find the whole pot was on fire, and all the knobs for the elements were on fire too, so I ran back to tell everybody to get out.

“When I went back in, it was so amazing how quickly the fire had moved. I’d always been told that, but you don’t really realise until you’re in that situation.”

The flames had licked up the cupboards, melting all the knobs and handles. Her cousin’s boyfriend joined her and tried to put the fire out. Then she remembered what she’d been taught about fires.

“I felt like I had to do something about it, because I was the one who put the pot on.”

She went into the laundry and found a pile of towels, which she tossed to him. He threw them over the fire.

“Then I realised my Nana was still upstairs, sleeping.” She dashed upstairs and brought down her grandmother.

Meanwhile, her friend was still in the kitchen. “The whole room was black and I couldn’t even see him, but he’d thrown the towels over it, and suffocated the flames.”

By the time the fire brigade arrived, the fire was out, but the room was a blackened mess. All the food had to be thrown out, the stove was replaced and the cupboards were repainted. The smell lingered around the house for weeks.

“It was terrible,” says Low. “Fortunately, the house was insured and the kitchen was repaired. Nana only lost the food we threw out.”

VEHICLE INSURANCE

You can insure your vehicle against loss or damage from accidents, fire, or theft. For extra security, you can add extra full cover for the vehicle, and liability to damage to someone else’s vehicle; or everyday cover if you damage someone else’s vehicle, your car is stolen, or there’s a fire. Premiums are lower if you keep your car in a locked garage, or if you have an alarm.

The car’s gone!

Julie* recommends you double-check the policy you’ve signed up for when you insure your car. You need to know what it covers – and what it doesn’t.

When Julie went to get into her car after work one day this year, she found only an empty car park and some broken glass.

Her Subaru Impreza, containing her toddler’s car seat and stroller, had been stolen. But there was worse to come. She discovered her insurance was third party only – it just covered her for accidents where a third party was damaged, and wasn’t the usual third party, fire and theft coverage.

She was panicking; even with a replacement car she couldn’t collect her child from her carer without a car seat, or even dash to the corner dairy without the stroller. Fortunately kind workmates loaned her replacements.

When her car was found later, damaged, she had to pay to have it repaired. She was also surprised to find her contents insurance didn’t cover the car seat either, and she had to pay to replace that.

“Now I’ve got a new car and, for the first time in my life, I have comprehensive car insurance,” she says.

* Not her real name.

By Brenda Ward

First published 20 November 2017.

The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.