$19,538,065 - What Does That Represent?
If you were at the NZDA Conference in Auckland in August you might have come across this number. This is the total of claims paid to NZDIS members in the last 10 years from insurance policies in place for members and their families.
The breakdown by claim type is as follows:
- Disability/Income Protection $7,462,938
- Life $2,983,921
- Trauma/Critical Illness $1,120,707
- Medical $7,970,499
So, on average, nearly $2,000,000 per annum in claims. Insurance meets a financial need at the time of an unexpected event. The alternatives to having insurance payouts for these losses could have been to either pay from existing savings or borrow money. The downside of the alternatives is either the loss of investment opportunity and loss of capital or interest repayments and repayment of principal. In both alternative scenarios the cost is significantly higher than any insurance premium would have been.
The beauty of insurance is the risk is spread across many. Whereas savings or borrowings are personal - leaving you carrying the entire cost.
They say a picture is worth a thousand words and from my perspective one of the most interesting points to take from the above is the inverse priority of insurance. As a society, life insurance is part of the vernacular. We often refer to financial advisers as “life insurance agents”, banks put an emphasis on protecting mortgages or debt by using life insurance and couples starting out taking life insurance to provide for their families. Typically, the “what happens if you’re not here” question is the first one dealt with.
As seen above, approximately 15% of claims were paid as a result of death. Yet, in 2017 80% of deaths in New Zealand were after the age of 65. Given the need for life cover is invariably tied to debt and dependent family, this need has significantly diminished by this stage in life. Therefore, most folk will die without receiving a claim payment from life insurance.
With 15% of claims being death related, this leaves 85% of claims where the individual suffering the event or condition is still alive. While medical claims were made on behalf of infants through to octogenarians all of the Disability/Income and Trauma claims were for members of working age - 25 to 65. These claim settlements are equally, if not more important, to provide for family and claimant.
So, here’s the point. Life Insurance companies collect more premiums for life cover than any other type of insurance. For those of us that work in the industry maybe we need to improve how we communicate to clients. It would appear a greater understanding of the financial risks we face in life and the range of insurance options available would make a big difference.
Take, for example, a situation I found myself in when talking to a group of students and having to clearly define what disability income protection insurance was. Both in terms of what it paid and when it would pay. There wasn't the slightest hint from the group that they were previously aware such a thing actually existed - let alone they might actually want it. As I pointed out to them, their future earnings were their biggest asset and they were far more vulnerable to the loss of this than any other asset - be it house, car or even life.
I often hear people fearing they may die without enough life insurance. My fear for them is surviving without enough insurance. The cost of losing income, still meeting household costs and debt repayments along with medical treatment and rehabilitation can often be a far greater financial burden than outright death.
From time to time it's worth taking stock of what’s important to you - family and asset wise, and determining where and from what you are most vulnerable. Insurance can be that comforter that responds to those vulnerabilities should an event occur and protects both you and everything you value - dead or alive.