I was talking to a potential client on Friday afternoon and this was his comment about his thoughts on Insurance. My response back to him was “yes, I agree, Insurance does cost money, and it’s really not worth it… until you need to claim!”
With this conversation in mind, I thought I would look up the definition of Insurance, and this is what I found:
“A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company……”
It never ceases to amaze me how people see insurance as a financial burden rather than financial protection. Last week I spoke about how people are happy to pay $3000 a year for their car insurance, yet begrudge paying $3000 a year to protect their ability to earn an income, and therefore their ability to have the nice car, and the lifestyle they have earned.
This week I would like to talk about how it has nothing to do with cost, but what you, as the client are prepared to risk in the event that something went wrong. This is something that I talk to all my clients about – my job is to ascertain what risks you need to cover and how much of a financial burden these risks will be on you and your family if something happened to you. Having said this, we need to find a ‘happy medium’. How does my recommendation stack up with your budget? And how does your budget affect your financial protection, and do we need to move the goalpost on either?
Let me put this into context. Two of my clients look identical on paper. Similar incomes, similar jobs, similar net assets, similar lifestyle and financial goals. However their attitude to their financial protection was completely different. One client wanted the absolute Rolls Royce protection. This made her feel confident that she was properly protected and comfortable about the future. She did not want to take any risks of something happening to her and not being able to access the Rolls Royce of care.
My other client however, was ecstatic that I was able to structure her plan so that she had better quality and more protection for the same price that she was already paying. Her philosophy was she was happy to ‘take a punt’ on her financial protection if something went wrong, and worse case scenario she would have to downsize the home and make do with what she could afford.
There is nothing wrong with either option. It comes down to the clients’ level of comfort in what the cost vs benefit is. I’m not here to make you take out the Rolls Royce, but I am here to highlight the potential financial burden between the Rolls Royce and anything less. I would much rather at least start the conversation with my client, gain their trust and allow them to understand what financial protection means to them and their family, opposed to discussing cost. Cost, whilst important, is the last element of the equation.
This is another reason why it is so important to review your plan every year. It is an opportunity to review why we have put the cover in place and what financial and lifestyle outcomes this cover can provide you in the event something goes wrong.