When you’re earning a good income, building assets and you feel in control of your finances, it’s natural to ask the question: “Do I still need this insurance?”
We hear this sometimes from clients who are financially comfortable and who are starting to review their commitments. When you’re earning a great salary and your premiums add up, it can feel tempting to cancel , or reduce your cover and rely on your what you’ve built., But before you do this, it’s worth taking a closer look at what going without insurance could actually mean for your long-term plans.
Self-insuring means choosing not to have formal insurance policies and instead relying on your own assets, savings or investments to cover the cost of unexpected events. If you became seriously unwell, injured or if you passed away, your plan would be to fund the impact using your savings and investments.
At first glance, this can seem like a reasonable approach. If you’ve paid down debt, grown your income, and have built up equity or investments, you may feel confident that you could get through most things without help from an insurer.
But the question is not just whether you could get through it, it’s whether you could get through it without it compromising the goals or lifestyle you’ve worked so hard to achieve.
Let’s say you earn $200,000 (net) per annum and your partner earns another $100,000 (net) a year. If you were off work for 6 months due to illness, and you didn’t have income protection, that could leave your household short by $100,000 (net).
Even if you had the funds to cover the shortfall on a day-to-day basis over the course of the year, that’s $100,000 less for your investments, property goals, or retirement savings. If the gap had to be covered by selling shares or property, you might be doing so at the wrong time or under pressure.
Or, if the worst happened and you passed away unexpectedly, could your partner manage the mortgage and living costs on their own? Would any plans you had fund aspects of your dependents lives still go ahead?
Diagnoses of conditions such as cancer, heart impairments or a stroke can mean time off work, out-of-pocket expenses and a change in earning capacity – not to mention medical costs – and unless it is an accident, ACC does not kick-in to provide any cover.
It is in these instances, that insurance cover really proves its worth. Insurance is designed to help preserve and protect what you’ve built and ensures your lifestyle and family goals remain intact during times of stress.
Ideally you need to strike the right balance. It is just as important to ensure that you not over insured as it is to make sure that you aren’t under insured. In fact, as your wealth grows or your commitments decrease, there may be good reasons to adjust your wait periods or restructure your policies. But deciding to go without insurance while you are still in your income producing years should never be something that you drift into. If should be a well-informed choice, made with a clear understanding of the financial impact of something going wrong.
At Threefold, we work with clients across all life stages to make sure their insurance reflects where they’re at and where they’re heading. If you’d like to know whether your insurance is fit for purpose, we’ll help you understand your exposure and make a decision that aligns with your goals.
To book a review, click here and one of our advisers will be in touch to chat. Plus, if you book a KiwiSaver, mortgage or insurance review this month, you’ll go in the draw to win a month’s mortgage repayments on us, up to the value of $5,000!
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on our industry know and personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.