Do you need cover in sickness and health?

MARTIN HAWES
Last updated 05:00 16/03/2014
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MORE COVER? ACC may come to the party if you have had an accident, but if you need care or cannot work due to illness, insurance may be the answer.

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Good health is one of those things that you do not really appreciate until you have lost it.

Last week I had several days in bed with a stomach flu - normally a minor complaint, but in this case not to be taken lightly because I had the full-blown male strain of the ailment and suffered accordingly. Miraculously, my health improved as the weekend approached and so I was able to go off on Saturday morning on a two-day mountaineering trip.

Although you cannot insure against illness, it is easy (albeit expensive) to insure against some of the effects of ill health. While ill health is unpleasant and painful for both the sufferer and the sufferer's partner, it is also often financially damaging. This comes through two areas: the loss of income from the illness and sometimes the cost of the treatment.

These insurances are generally known as income replacement insurance and health insurance and it is no easy decision whether or not to purchase them.

All insurance carries a cost: actuaries in insurance companies work out the chances of various events and then set premiums so that claims will be less than premium income.

It is unlikely that you will be a winner from the insurance that you buy: while some win, most will pay more in premiums than the claims that they make. Over a large population of people, the winners are, in fact, the insurance companies.

The only reason for you to take insurance is to pass on risk that you cannot afford to someone else (the insurance company).

We pay to rid ourselves of that risk. This is obvious when it comes to income replacement insurance in any of its various forms. Income replacement insurance pays out if you are disabled by illnesses or injury, allowing you to carry on meeting the other costs of living. For most of us, losing our incomes is the thing that we can least afford - it is probably our biggest risk.

Injury by accident has limited cover from ACC, of course, but being stuck with no income due to ill health is a disaster with which few of us could cope. Always remember that when one partner is disabled, the other is also often unable to easily earn income.

However, income replacement insurance is expensive: the insurance company has a liability to pay out your salary for years and that could mean a lot of money. The premium will be priced accordingly.  However, in spite of the cost, I think many people sleep better for having some kind of income replacement insurance.

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Health insurance mitigates the risk of slow and sometimes poor medical treatment.

In my view there are few people who need to insure against minor medical costs like a visit to the doctor, but insurance against the cost of surgery or other expensive procedure is another matter.

Health insurance buys speed on to the operating table although this is not always so as the public system does move quickly when the medical issue is major and/or urgent. When speed and timing are important, you either have to be ready to pay the medical costs or have health insurance.

In some cases, quality of treatment is also better privately. You have the choice of surgeon who has a choice of anaesthetist. Private healthcare may also have access to new and better medical technologies.

With so many advances in medical science and treatments, you are going to have to budget for health costs in one way or the other. Either you self-insure in which case you could start a dedicated fund that can be drawn on sooner or later when need arises. In doing this, you run the risk of having to draw on it before you have accumulated much cash.

The alternative is to take health insurance knowing that you will probably pay more but that you will be able to meet your costs from the start.

There is no easy answer to this quandary: ultimately you get what you pay for. Your job is to decide whether the additional cost of health insurance is worth the speed, quality and timing of any procedure that you might need.

Martin Hawes is an authorised financial adviser. A disclosure statement is available on request and free of charge, or can be found at martinhawes.com. This article is of a general nature and is not personalised financial advice.

- Sunday Star Times

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