Careful planning can limit cost of insuring health and income risks

All New Zealanders want their families and financial health to be protected when their physical health lets them down.

New Zealand enjoys an outstanding public health system, supported by ACC, but these schemes do have limitations.

As the public system tries to cope with population pressures it has to ration access to services.

By contrast health insurance pays for quicker access, choice of provider and additional services offered by the private health sector.

More than two thirds of us rely on the free public health system and do not feel the need for health insurance, which has a significantly lower uptake than other developed countries.

The public health system is focused on emergency and acute care and non-elective surgery, whereas the private sector provides semi-acute and non-urgent but necessary healthcare assessment and treatment.

Kiwis primarily take out health insurance to help them with additional medical bills and to avoid the surgery waiting lists that are growing with our ageing population and increasingly sophisticated and costly procedures.

While some people feel they cannot afford health insurance, the reality is that health insurance does not necessarily have to cost an arm and a leg.

In many cases having an expensive health insurance may not be the best bang for your buck.

The best approach is often to partially self-insure by having a very focused insurance policy and a larger excess.

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This at least limits the costs to something people can plan and budget for, but leaves the insurer with covering the very large unexpected costs.

Every person's situation is unique and therefore requires a tailored approach to insurance. Remember that health insurance only deals with funding treatment costs and it does not help your family meet their ongoing mortgage payments and living expenses while you are unable to work during recovery.

It would be unwise to cover one risk really well but have no plan in place that deals with other risks such as death or disability, or your home burning down.

A prudent approach to risk and insurance planning would therefore be to have a wide range of risks covered, but with the levels of cover reduced to keep the overall programme affordable. This way you can tick as many boxes as possible within your budget.

It can be tempting to feel well insured by having a large amount of life insurance, but if that comes at the sacrifice of not having any disability insurance, for example, you are taking quite a big risk.

Not everyone needs all types of insurance and typically people with a big mortgage and number of dependents will consider putting some money aside for life insurance, while breadwinners with little children will consider income protection insurance in case the breadwinner falls ill.

By carefully weighing up your personal situation, you may find that you could cover all these risks for the same price as your current health insurance.

Many self-employed New Zealanders will have some form of income protection insurance, but even those of us on a salary may want to consider this kind of cover.

Illness is the main reason people are off work for extended periods, not accident, and this is why ACC is not involved in the majority of disability claims.

The most common claims across my desk are mental illness (stress depression anxiety - often white collar professionals), cancer, stroke and heart attack.

It seems the percentage of stress and cardiac-related claims is even higher in Christchurch, where many locals still struggle with the aftermath of the earthquakes.

Farmers who find themselves working harder with stress related to high debt, fluctuating commodity prices and extreme weather are also vulnerable.

For this group, having an insurance that protects their income and enables them to hire staff to keep the farm going (for example), can allow them to get assistance, treatment and recover.

The key is to find a balance that suits your situation, covers your main risks and gets you the most benefit for your budget.

It is also important to adjust your insurance programme on a regular basis so it stays fit for purpose. For example many New Zealanders should reduce life insurance once the kids are out of the house and they have paid off their mortgage. Our life constantly changes and so does our need for insurance so have a good look at your insurance policies every couple of years. You may be surprised how much you can save or claims you have missed out on.

Several times each year, I will handle a retrospective claim over an incident from years ago and the clients had no idea they were entitled to a payout. Often these are substantial sums that can add a silver lining to an event most families are trying to forget.

Nigel Sutherland is a senior insurance broker at Crombie Lockwood. 

 - The Press

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