Why Are So Many People Underinsured?
There has been a lot of attention by the financial services industry, consumer groups and the media on the level of "underinsurance" in New Zealand.
While there is a very high use of general insurance (covering personal assets and belongings), there is generally a very poor level of personal protection agains a variety of personal risks such as loss of income or loss of life.
4 Most Common Reasons for Being Underinsured
- High premiums for personal insurance plans.
- Lack of understanding the types of insurance products.
- Lack of trust in insurance providers.
- A market perception that because of ACC, EQC and other government support systems that there is little need for personal insurance.
Why are Premiums So High for Personal Insurance Plans?
Personal insurance plans include income insurance plans, life insurance plans, total and permanent disability insurance and trauma insurance plans. Personal insurance plans do not include home and contents insurance plan. Personal insurance plans are premium plans meant to help you during hard times where you may need financial support.
Premium rates can be on the higher side as some insurers have a different view of certain risks to other insurers. However generally, the premiums (or prices) reflect the actual risk – so the more expensive polikcies tend to be the ones where there are more claims, or claims of higher amounts in value. Higher premiums at an individual level will reflect the different risk that any one person is compared to the wider market. For instance, a smoker wil pay higher premiums because there are myriad health impacts that statistically will affect a higher proportion of smokers than would otherwise be seen in the general population (including non-smokers).
What Factors Affect the Premiums I Pay?
Age, gender, your own medical history and/or existing conditions, family medical history (where there is a stronger than usual posibility of certain health events); lifestyle choices or hazardous pursuits or occupations all have an impact upon the price that any individual pays.
Policy structure can have a large impact too. Opting for a standalone plan or one where a bundle of benefits are aded together and then whatever claims event happens first uses the cover have widely different pricing.
How Can I get the Right Insurance Plan for Me?
The simplest way to get a good insurance plan is to understand where you stand financially, what help you will need from the insurer in the case of insured events and how much help you will need. It is asbout understanding your own financial capacity – or how much you can self-insure – together with your appetite for using your own assets to fund disasters.
Can the Insurers be Trusted?
The insurance industry pays out billions of dollars per year, with successful claims being in the high 90% area. The majority of the unpaid claims which attract bad publicity and lead to the distrust are rejected for genuine reasons such as failure to disclose information that would have changed the policyholders ability to get the insurance in the first place, or not being eligible to receive certain benefits because other parties such as ACC step in and pay first.
Members of the public often do not understand that we have several unique features in New Zealand, which certainly includes ACC and its comprehensive no-fault coverage system. However ACC is limited in how much it will pay, and what it will pay for. Often ACC and personal insurance work hand in hand, as do the public health system and private medical insurance.
While our well developed social security and general compensation schemes will often ensure that people receive urgent attention that is world class, these schemes do not provide all the options and coverage that many consumers would like to have.
That is where personal insurance comes into its own.
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