Life insurance - a luxury or a necessity?

How dependant is our financial security on our physical health? The take up of KiwiSaver has been above expectation and created an increased awareness of the need for financial security in retirement among New Zealanders. But consider what may happen if we don’t make it to retirement age.

A study in 2005 by TNS Research found that two out of three New Zealand families have no life insurance cover or are underinsured. Further, almost half of us have no life, medical, income protection or critical care (trauma) insurance at all.

We all know someone who has suffered a major illness or has died. In 2007, New Zealand life insurance companies paid out $419 million in death claims and $196 million in other payout benefits. Leaving their families with bills, mortgages and other debts to pay can be a reality if insurance isn’t considered a necessity.

Being in debt is generally a reason for taking out insurance, yet only two thirds of the money lent by banks is covered by insurance of equal value. According to the Reserve Bank of New Zealand, total housing debt is still growing. QV reported that for the quarter ended August 2008 that the average sale price of houses nationwide is $391,000. This means many couples under the age of 45 may require both partners in the relationship to be earning to meet their financial obligations.

So what happens to those who aren’t insured and something goes wrong? They may need to take time off work to recover from a serious illness such as cancer, and their income may not continue. How would they continue to cover the bills, mortgage and any additional expenses? Insurance is not a luxury - it is something that should be considered seriously.

We’re living more sedentary lives now than we did in the past, working longer hours and eating convenience food meaning the chances of a critical illness or premature death striking us are worryingly high. ACC doesn’t cover these eventualities because they aren’t accidents.

Maybe it’s time for a reality check. New Zealanders take responsibility and insure houses, cars, personal effects and even debt. We really should give serious consideration to insuring our life or earning ability - after all, one in seven of us will die during our working lives and many more will suffer a serious disability. Without adequate insurance, dependants could be left struggling to cover debts and maintain their lifestyle.

ENDS

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