Probability V's Impact

15 June 2016
There are 2 reasons why we take out insurance.  We do it because we think something is likely to happen  OR we do it because if something did happen the impact on our financial situation would be so major that we would not have the resources to recover from it.
If something is likely to happen then we need to ensure that we plan for it.   For example we know  that it is very probable that we would have a household chattel break or go missing but the financial impact of the loss would be fairly minimal.  So we may decide to insure against only if something major was destroyed or the entire household contents were lost to some disaster like a fire.
Perhaps the most severe impact financially on any household is the death of a member.  While the probability of death for every member is  certain - it is the early departure of the individual that would offer the most severe financial  risk.  
The older we get the closer mortality stares us in the face but with this “maturity” we also have the benefit that our financial commitments generally diminish.  The mortgage may be gone, the children all grown and gainfully employed and there are savings in the bank – hopefully!  So if we did go or when we did go the financial impact of our death would hopefully be minimal.
 However if we die when we are younger our financial situation is often a lot more fragile.  There may be mortgages to pay, children to support and savings may be minimal!   
If a parent dies there are added financial responsibilities such as a child’s upbringing and education.  It is for this reason that we take out insurances to provide financial resources for those left behind.  But the good news is that the Probability of this happening is low.  So we can be smug in the knowledge that we will have our children and their children and probably their children’s children around to attend our funerals and fight over how the estate is to be divvied up.  However we cannot be smug enough in our earlier years to think that our financial responsibilities are buried or cremated along with us.  
The good news is that insurance agencies generally assess probability and also apply this rule to their premiums.  A younger person with a healthier lifestyle may have high financial obligations but as they are a good insurance risk they will have lower premiums.  
An older person who’s smoked for the last 50 years would attract a very high premium but in all likelihood they may not have the need for as much of this type of insurance as they may be more financially sound
Thinking of death is not something that we like to dwell on but the reality is that it will happen to us all.  The Probability of it happening before we are old is low but the need is still there.  We still need to take responsibility and ensure that IF that should happen that those left behind are not having to deal with the added devastation of a huge financial loss.

Published In Whakatane Beacon

This post was written by

Trish Marsden - who has written 96 posts

Comment on this post