I'm a huge advocate of most forms of insurance. (For most, but not all, people.)
Insurance - in the form of general insurance which cover our biggest assets like our home, contents, and cars; and personal insurance in the form of life insurance, income protection insurance, total and permanent disability insurance, and trauma insurance - can address many of the most significant financial risks that we face.
These types of insurance will help us (and/or our loved ones) in the event of something catastrophic happening. Like dying unexpectedly. Or having an accident or being diagnosed with an illness that means we can't work. Or the house going up in flames.
As a result, I'm heavily insured. And I encourage my friends and family to consider doing the same. It concerns me when I read about surveys that say 87% of kiwis, 50% have life insurance, and only 11% have income protection insurance.
But it's important to recognise that even if you're heavily insured, there are still significant risks that you're exposed to.
We're all exposed to risks that aren't financial in nature. But let's focus on a few financial risks.
If you're in a relationship with another person, you both experience a number of financial benefits. The Atlantic published an article about "The High Price of Being Single in America", which applies (albeit with different specifics) to other countries as well. The flipside is that a relationship breakdown can have a huge impact on your financial outcomes. Insurance does little to address this risk. For a story that really put this into perspective, check out this link.
If you run a business or work in a high risk profession, the wealth you've built up with your hard work can be exposed if someone wants to enter into a dispute with you. Having an effective risk management strategy that reduces this likelihood (and positions you well in the event of such a dispute), and structuring your assets effectively, can protect your loved ones' financial future, as well as the interests of other stakeholders, including shareholders, employees, and people relying on your services.
There are many other financial risks as well. These include investing your assets unwisely, for example by failing to adequately diversify your investments. Another big risk is failing to sufficiently prioritise your long-term financial objectives, and spending too much in the short-term to the detriment of providing your future self with the lifestyle you want when you retire. Insurance doesn't address this. (And in fact, when deciding how much insurance cover to acquire, this is something that you legitimately need to balance. Personally, the amount I'm paying in insurance premiums will mean, in the event that I'm lucky and nothing happens, that my retirement balance will be hundreds of thousands of dollars less than it would otherwise be. But it's well worth the price, in my view).
The key point I want to stress is that insurance is an important tool for managing many significant financial risks. But it doesn't address all financial risks.
Even the most useful tool can't do everything. Insurance is important, but it's only part of the broader strategic framework for managing our personal and professional financial risks.