Insurance isn’t black or white

20 December 2019

When it comes to insurance, it can be easy to think in binary, black-or-white terms. You either have it or you don’t have it.

When I ask people if about their income protection insurance arrangements, they often answer as if it’s a “yes” or “no” question.

But there’s a big difference between a policy with a 4-week waiting period versus a 13-week waiting period.

There’s an even bigger difference between a policy that provides cover for 2 or 5 years compared to a policy that covers you until age 65.

Do you have life insurance? There’s a big difference between $1 million of cover and $100,000 of cover.

This is a short article, but I want to stress something important.

Please don’t think about insurance in binary, all-or-nothing, you-have-it-or-you-don’t terms.

I’m a shades-of-grey man myself, but you have my permission to think in black-and-white terms in other domains in your life. You do you.

But please think about insurance in terms of shades of grey. The stakes are too high.

The problem with thinking about insurance in this way is that many people decide they can’t afford (or justify) increasing premiums, and decide to get rid of their insurance policies in one fell swoop. For many, it would be much better to reduce cover or alter policy settings – and reduce premiums – rather than get rid of insurance entirely.

Thinking of insurance in shades of grey is also valuable because it means you are more likely to think about how your insurance needs will change over time.

When you stop being attached to having life insurance at a certain level of cover (say, $500,000 or $1 million), you can start to entertain more tailored levels of cover that consider your evolving financial and professional situations and factor in the ages of your dependents.

If you take one thing out of this article, make it this: Don’t think about insurance in black-and-white terms. Think of insurance in terms of shades of grey.


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About the author 

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

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