New Zealanders may be underestimating insurance value: FSC

Despite being generally financially confident, many New Zealanders do not have a full understanding of how insurance can fit into their financial lives, the Financial Services Council (FSC) says. 

It has been looking at New Zealanders’ “perception gap” through its “Money and You” research.

That refers to the fact that, although more than 80% of respondents said they were financially confident, only just over 60% showed they had a good understanding of key financial concepts.

One of the largest perception gaps was in relation to insurance, the FSC said.

It said, while 98% of homeowners had insured their homes, and 95% of car owners had vehicle cover, just 20% of New Zealanders had insured their income against sickness or disability. 

The research showed that the most common circumstances in which respondents said they would take out insurance to cover their incomes was if they had more money, if their health started to decline, if they started a family, if it was more simple to understand or apply for, or if an insurance company could better explain the benefits.

“With 39% having life insurance yet 82% indicating that they are financially confident, even considering the concept that some New Zealanders will self-insure, there appears to be a perception gap in knowledge around these insurances and managing life risk effectively,” the FSC said.

More than 60% of people said the expense of insurance was why they did not have life cover, far ahead of the 16% who said they did not see the need for it because they were healthy and 14% who did not see value.

Just over 20% had trauma cover, 20% income cover, 17% total and permanent disability and  39% any type of life insurance.

The FSC said its research suggested managing risk was a tough conversation for New Zealanders.

“We don’t like to talk or think about the things that could impact our personal or family financial situation, like injury or death. Many are unsure about the benefits of insurance and how to manage financial risk, where to get advice or are unable to afford the premiums.

Some are happy to self-insure, or rely on Government to reduce financial risk through schemes like ACC.”

But it said that those who did have life insurance could see that it offered peace-of-mind and was a financially responsible thing to do.

FSC data showed that there were 4.1 million life insurance policies across the spectrum of policy types oi [play in New Zealand, and in 2023 $1.2 billion was paid in claims.

People aged 29 to 57 were most likely to hold life insurance, and those who were older were more likely to have previously held it but to have given it up.

The FSC said New Zealand was one of the most underinsured nations in the OECD and the levels of risk were increasing, which put people’s incomes at risk.

“Insurance plays an important role in spreading the costs of risk that helps to ensure financial stability for New Zealanders through unexpected and difficult times.” 

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