Sometimes we consider the concept of ‘saving the premiums’ instead of spending money buying insurance we don’t need. Besides, we all want to believe bad things will never happen to us in the first place, right?
The alternative to buying inurance to manage those risks that can’t be avoided involves nomintating assets or funds that could be used instead of relying on an insurance payout – knows as ‘self-insurance’. But let’s be clear; There’s a significant gap between ‘self-insurance’ and ‘no insurance’ – and there’s a lot of middle ground. It’s not a binary thing where you have to be all in, or all out. I like the middle ground, because that’s where the smartest money is.
Buying insurance is an important part of getting all your financial ducks in a row. Working out how to manage your share of the risk is the smartest way to buy only what you need. A good adviser helps people first to identify and understand their risks, and put some numbers around them. Wise use of self-insurance limits your losses while covering the things you can’t afford to lose.
I encourage clients to use self-insurance to reduce the cost of their cover:
- For many who earn their income, self-insuring a year or two – or a lifetime, of sick leave is not possible. In the case of income cover, you can effectively buy sick leave ‘till retirement. And you can roughly halve the premium if you self insure the first few months.
- Limiting the financial damage of major surgery or medicine to, say, $1,000 – 5,000 protects the rest of your retirement funds. A big excess on a health policy brings a big discount. When the ongoing cost is an issue, sometimes this strategy makes more sense than cancelling the policy.
- The first $2,000 or so of your house insurance is often worth around 20% of the premium. When you think about like that, and how often you actually claim, it can make sense.
Sensible levels of self-insuring is both prudent and efficient, and puts the insurance you need within reach.
To find out more about getting the right mix just contact me today.
