I'm a heretic when it comes to personal insurance

Insurance apostasy

I've said it before and I'll say it again: insurance is a vital part of having your financial house in order. We need to manage the catastrophic risks to which we're exposed, and insurance is a foundational tool for doing so. 

On this, and many other things relating to insurance, I'm on the same page as most of the insurance advisers I've met.

But there are several areas where I diverge from what I see as the consensus view.

I think the reason I hold these views is because I do not receive commission from insurance products. As the saying goes, "It is difficult to get a man to understand something, when his salary depends on his not understanding it."

I've written on some of these points in the past. Specifically:

When it comes to life insurance cover, the question isn't how much debt you have.

The question is how much you want to provide for your loved ones. It's a subtle but important distinction. Debt is a factor, but it's a secondary factor, and insurance needs shouldn't ever be reduced to "you want to pay off the mortgage".

Personally, whether I own a home and have a mortgage is beside the point. My concern isn't the mortgage so much as providing for accommodation and the living expenses of my loved ones. When I become a homeowner, my net worth didn't change, and nor did my desire to provide for accommodation for my loved ones. Changing from a renter to a homeowner (and mortgage payer) didn't change my insurance needs.  

  • Many people are under-insured. But many people are over-insured as well.

I've returned to this theme many times on this blog. Bill Gates doesn't need life insurance. A retiree who has a significant nest egg doesn't need life insurance, and in most cases they can't even get income or mortgage protection insurance. There are many people who can afford to self-insure.

If you can afford to take the risk yourself, you don't need to pay substantial premiums to an insurance company to take the risk for you.

This is not a binary, black-or-white matter. It's not a case of needing insurance or not. In some cases, your insurance needs can reduce. Frankly, my insurance needs are substantially higher today than they should be in 10 years' time. In 10 years' time, my children will be a lot older and closer to financial independence. I'll have built more wealth to cushion the impact of something happening to me.

As I've become more comfortable, I've been able to take steps to reduce insurance premiums already. With income protection insurance, for example, I'm happy to self-insure against not being able to generate an income for three months. The risk I need to manage is if I'm out of work for longer than that. Simply changing the waiting period on my policy reduced my income protection premiums substantially.

Relevant articles:

  • Insurance is a risk management tool, but it's not the be all and end all. 

We're all exposed to risk (~uncertainty) in life. Insurance products manage many important risks that we face. Like premature death, inability to work, and houses being destroyed by earthquakes.

But insurance doesn't address all of the risks we face. There are risks involved with making imprudent investments. There are risks associated with being too conservative with the investments you make. There are risks associated with not developing marketable skills, and of "retirement" becoming a euphemism for displacement from the workforce. There are dangers associated with operating a business or being in a high-risk profession. There are risks associated with relationship breakdowns. There are risks involved with being too focused on one or two narrow areas of your life and failing to live the full catastrophe of a rich life. 

Which is all to say, that insurance is a foundational risk management tool. But like any tool, it doesn't cover all contingencies.


Insurance is vital. It pays to have good quality insurance advice. One of the unique services I provide through Fairhaven Wealth is independent, unaffiliated, commission-free, advice in relation to personal insurance. I'm happy to have a free, no-obligation chat about how I can help with your insurance situation - call me on 021 0269 2213 or book a time here

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 www.wealthandrisk.nz.

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