Insurance is a foundational risk management tool. But like any tool, it doesn't cover all contingencies

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. 

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.