Debunking 7 common myths about insurance coverage

Like it or not, insurance is a critical aspect of financial planning. Yet it is often surrounded by myths and misconceptions that can lead to confusion or even put people off from taking it out altogether.

Want to make informed decisions about your financial future? Then dispelling these insurance myths is a crucial part of the process. Only by understanding the realities of insurance and debunking common misconceptions can you make confident choices for you, your family or your business.

Insurance is a safety net

To clear up some of these common misunderstandings, we spoke with Yamini Agrawal, the Head of Insurance at Global Finance. Her answer: “Insurance is a safety net. It is a form of proactive protection from potential financial loss and by paying a relatively small ongoing amount you and your loved ones are financially protected in case of accidents, illnesses, damage, injury or other unforeseen circumstances. Without it, you might face significant financial strain during difficult times.

“Whether it’s life, trauma, total permanent disability (TPD), income protection, or health insurance, each type plays a crucial role in safeguarding you and your loved ones from unexpected events”, Yamini tells us.

So, let’s unpack that by examining seven of these insurance myths a little more closely.

Myth 1: I’m too young to think about insurance

When we are young, we blithely believe nothing bad could possibly happen to us. One of the joys of youth is that feeling of invincibility. Insurance is not required. However, bad things can happen to anyone at any time.

The ideal time to purchase life insurance is before you’re old or unwell. Protecting yourself when you are young and healthy gives you coverage without additional premiums or medical exclusions. Early enrolment means cheaper prices and a solid basis for comprehensive coverage before needs arise.

Myth 2: We can sell assets in case it all turns pear-shaped

Some people think they can sell their assets to replace lost income if something bad happens. Sadly, however, this is not usually a viable, long-term solution.

Temporary relief at best, selling assets doesn’t address the root problem of lost income due to accident, injury, or death. Insurance, however, provides a financial cushion. It is a bolster that helps you maintain your lifestyle and meet ongoing expenses over the long-term.

Myth 3: I don’t need insurance because I have savings

Many see saving money as a better option to insurance. While saving is necessary, and you may have thousands, tens of thousands or even six figures stashed away, it still may not be enough compared to what you can get with a disability or life insurance policy.

Savings may not always be sufficient to cover expenses resulting from accidents, illnesses, or the unforeseen. While savings may serve as a safeguard against the unanticipated in the short-term, there is not guarantee it will last. Your money may be tied up in stocks, real estate or other investments over which you have no direct control.

There’s no way of knowing what the market will do and over a potentially long period where you are unable to continue earning, insurance can be a way to protect savings and assets from being depleted.

Myth 4: Insurance companies do not pay claims

There is a common belief that insurance companies rarely pay out claims, leading people to mistrust the insurance process. Well, that’s not the case, at least not in New Zealand.

Insurance companies pay out a significant percentage of claims. Recent data shows that AIA and CHUBB paid out more than 93% of claims received. This high payout rate demonstrates that insurance companies are committed to supporting their policyholders when they need it most.

Myth 5: One cover to rule them all

One single insurance policy does not bind them all: it will not cover all your needs. Each type of insurance serves a different purpose and protects you during various stages of your life. So, consult with an insurance expert. It will cost you nothing.

At Global Finance, we strongly recommend you have regular reviews of your coverage to ensure you are adequately protected. A complete review of your cover and needs at least a year is advisable.

Myth 6: Insurance is expensive

Often, we hear that insurance costs too much and is not worth the investment. But it can be more affordable than you think. In fact, you can start with as little as $5.00 a week, depending on your age and coverage level.

Comparing this to the cost of a coffee each day, insurance is a small price to pay for peace of mind and financial protection.

Myth 7: Pre-existing conditions are not covered

Another common myth is that insurance does not cover pre-existing conditions.

The reality is that there are all sorts of policies available; many of which cover pre-existing conditions. All you need to do is speak with an insurance expert to explore the options that best suit your circumstances.

It’s all in the scales

When considering insurance, weigh the risks of not having it against the costs of buying it. Would your family be able to manage in the event of your death? How would they cope without your income if you were injured long term? How would you pay for surgery if you were facing a year-long wait list?

By dispelling the more common myths surrounding insurance and the benefits it provides, we can help you make more informed decisions. If you have more questions or just want to chat about insurance and your possible options, contact Global Finance. Call the team on 09 255 5500 or email us at insurance@globalfinance.co.nz

The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.