By Carley Ellis
I recently ran a daily vlog over on my Instagram page (@carleymellis), where I addressed 31 common misconceptions that people have about insurance. I was so surprised at the engagement I received – I assumed people would see “insurance” and instantly turn off.
It highlighted to me that insurance is like tax and colonoscopies.
We understand they’re necessary, but we don’t know how to do it ourselves, and it might be kind of dangerous to try.
Insurance is only for people who have debt or dependents.
It’s true that life insurance might not seem like a top priority when you are debt- and kid-free, however, there are some compelling reasons why you’d want to look at it sooner rather than later. Firstly, insurance companies find you extremely attractive. You are a low risk, long term investment to them so they tend to offer you good premiums. By starting early, you can lock in cheaper insurance than if you were to start 10-15 years later.
Also, by starting your insurance plan earlier you preserve your current health status. Insurers don’t usually cover pre-existing medical conditions – you don’t tend to have too many of those when you’re younger.
Life insurance gets paid out straight away.
Nope – not correct. We can often secure you a funeral benefit within 48hrs – this is an advance payment of your life insurance, of up to $15k. However, after that point we need to wait for a few important documents, such as a death certificate and a will/probate. These can take at least two weeks to arrive, so ensuring that you have some money aside as an emergency fund to take care of mortgage repayments etc in the short term, is an important part of the strategy.
Health Insurance doesn’t pay for weight loss surgery.
This one even surprised me! Usually, health insurance will not cover any cosmetic treatments, so you can wave goodbye to that “full body lift” in Bali. However, when it comes to weight loss surgeries, such as gastric banding or bypass, some insurers cover this surgery. Why? Well, they believe that the health complications that are associated with having a higher BMI are a larger financial risk – that is, if they can help clients to achieve and maintain a healthy weight range, they are less likely to require more costly treatments and tests in the longer run.
Life insurance is paid out in accordance to your wishes in your will.
Wrong again. Insurance payments are all based on policy ownership – typically, the person/people who pay for the cover. If you own your insurance policy jointly, with a spouse for example, and you pass away, they automatically become the surviving owner and receive all proceeds of the life insurance contract. This is great if your intent is to support your family if you die too early; but it’s terrible if you separated two years ago, and never got around to updating the ownership…
It’s also important to note that if you have cover through your employer, that they are usually the owner of the policy. Therefore, the money will be paid to them, before making its way to your family. They may run it through a few internal policies (i.e., recoup any expenses that are owed to them), or it might need to go through some committee/board approval (helllllo lengthy delays). This all needs to be considered if you are relying solely on workplace insurances to provide for your family if you die.
Your financial adviser will give you all the answers.
We do spend time in the fine print, can translate “industry chat”, and know the metaphorical admin back-alleys of insurance companies, but we don’t know it all. To quote Adam Grant (psychologist and authoer) “On major life decisions, the purpose of seeking advice is not to get answers, but to gain perspective. No one knows what’s best for you – they can only share what makes sense to them. The most important question to ask is not what you should do. It’s what you might be missing.” Our role as your financial adviser is to get you to jump onto the balcony and have a look at what the dancefloor is doing – are there risks to your financial security that you haven’t noticed, over there spiking the punch bowl? Talk to us before making major financial decisions such as changing your mortgages, applying for insurances, adjusting your KiwiSaver contributions, or making wider, strategic financial plans.
So, there you have it – five common misconceptions about personal insurances and financial advice.
We all have the occasionally misplaced mal-perceived ill-formed and half-baked misconceptions. When it comes to your money, or your life (or both, let’s talk about it!)