When arranging personal insurance, clients can often fall into a trap of making one or more of five major assumptions. 

 

1) The Assumption of a sudden death: 

The reality is that of the 31,608 deaths in NZ last year only around 3% were caused by a sudden death. 

This assumption has led to many people thinking that if they have just life insurance that they are adequately covered as when they die their family will receive a substantial payout. But the problem is often, not that we die, but that we don’t die enough! If we survive the event then there is no payout – so while we may celebrate our survival physically, financially it could still be a disaster. It is for this reason that a range of insurance cover is so important.

 

2) The Assumption that you will be able to participate in your own claim: When a claim is made only the policy owners can lodge the claim. But sometimes the event that you have suffered may mean that you are physically unable to complete the necessary documentation. Therefore great consideration needs to be made regarding ownership of the insurance policy.

 

3) The Assumption that you would be able to return to the same job on the same terms and at the same level of income: Many people believe that if they had to take a long time off work due to sickness or injury, that they would have sufficient funds to provide them with adequate protection financially because once they had recovered they would be able to return to their job. But some events may result in months and maybe even years off work. Would your job still be open at the end of this time? While many employers may be sympathetic they too have families to support and need to operate their business profitably in order to survive. How long could they keep your job open? If you are self-employed – could your business handle you being off for this period of time?

 

4) The Assumption of Tolerance from your bank: Many of us believe that during a claim period that we could approach the bank and ask them if they could suspend your financial commitments to them. While this may be possible for a short time, it is often not the case.  While the banks do what they can to assist, they are often restricted by their credit policies. This can lead to clients suffering from depression, stress related illness and marriage break ups on top of the problem that caused them to be off work in the first place.

 

5) The Assumption that Medical Recovery would be the same as Commercial Recovery: After an illness or accident you may be well enough to have “recovered” physically, but you may not be able to return to the type of work that you were previously doing. For example, if you were a corporate lawyer, suffered from a minor stroke and had to take time off work, by the time you were fit enough to return you may not be able to work to the same high level (and thus generate the same high level of income) as previously. And what if you were fit enough to return to work but only at reduced hours? Or would you even WANT to return to work on a full time basis? If you were self-employed and had to operate at peak capacity but could no longer do so after the medical event how would your business recover?

 

In discussion with an adviser, it is not products that people need to focus on but the issues that they may experience that could expose them (and their families) to high financial risk that should be the basis to any insurance planning.