07 Aug The Only Logical Reason You Do NOT Need Personal Insurances
I want you to picture a friend who has just purchased a brand new sports car. Not a cheap sports car like a Porsche Boxster but a proper sports car like a Ferrari or Lamborghini. What would be the first thought that comes into your head?
Would you do like Chris Gardner did in ‘The Pursuit of Happiness’ and asked ‘What do you do and how do you do it?’
Or are you a bit more sceptical like me and ask ‘what drug syndicate are you a part of?’ (Self-diagnosed tall poppy syndrome there!)
After your friend has talked through how they brought the car, the size of the engine and how fast it goes, they offer you to go driving with them in the car. Of course, they won’t let you drive, you are a friend but not THAT good of a friend!
After flooring it after the lights turn green and going from 0 to 100kpm in around three seconds flat (and feeling your breakfast coming up) you come up with a random thought that you have to ask.
“Hey mate, who do you have your car insurance with?”
(Because that is the question I know everyone thinks when they first see a Ferrari and Lamborghini. No, it’s just me? Hmmm ok then, well let’s carry on with the story).
Your friend looks at you with a puzzled look “Why would I need insurance for this?”
“Errr, because if you crash this thing you will need to sell a kidney to raise the money to fix it.”
“Well I am a good driver, and I don’t plan to have a crash. I don’t need insurance.”
“What if someone crashes into you?”
“Nah, that won’t happen to me. That only happens to other people.”
Do you believe that your friend is bonkers? I certainly would!
Because that is part of the Australian psyche. If you are driving around without any form of car insurance, you would be considered nuts.
Even if you are driving a paddock bomb held together by duct tape, you will still have third party car insurance (because knowing your luck you will still crash into your friend’s Ferrari or Lamborghini).
So why the question is, why are Australian’s so willing to purchase insurance to protect their cars but they are not willing to purchase insurance to protect themselves?
A recent study by PureProfile found that “72% of Australians have comprehensive car insurance (I am assuming the rest have third party insurance), but only 22% of people have life insurance, and 12% of people have Income Protection insurance”.
I don’t get this.
Why Income Protection Is Important
If you don’t think Income Protection insurance is important, I want you to complete a quick calculation for me.
Firstly I want you to subtract your age from 65 (when I assume you will retire) to calculate how many years you still have to work. For example, if you are 30 years old you still have another 35 years before you retire (don’t worry if you have a Master Your Money Now Financial Planner on your side we will help you retire a lot earlier!)
Now multiply how many years you have before you retire by your current annual salary.
(Eyes popping out emoji)
Even if you are a 30-year-old nurse on a part-time salary around $60,000 pa, you will earn $2,100,000 between now and age 65, before we take into account any pay rises or promotions you will receive during that time.
You will also be asking yourself where does the $2,100,000 go – I ask myself that question as well!
So if you are going to be earning millions of dollars between now and age 65, what are you doing to protect this? If you lost your ability to lose that money, how that would impact your financial situation? How would you pay off your mortgage or keep your children in school?
Your ability to earn an income is your number one asset.
Don’t plan to get sick? You don’t plan to have a car crash either, but you still have insurance for your car.
Don’t Think It Will Happen To You?
Can you think of anyone who has passed away unexpectedly at a young age or has been unable to work for a long period? Why were they unlucky? Why are you so special that it won’t happen to you?
Don’t think insurance pays out? If you buy a cheap one online or have just basic cover in your super fund, it may not. You need to speak to an expert about this as you may not cover for what you think you are covered for.
If you apply the same logic to get car insurance as you do for personal insurance, you will find there is no logical reason not to have personal insurance.
Crunching The Numbers
Statistically, you have a one in thirty chance of being involved in a car accident.
But you have a one in three chance of suffering a medical event where you would qualify for a personal insurance payout before the age of 65.
If you are under the age of 45* you still have at least 15 years until retirement. You need a Plan B to protect yourself and your family.
If you go to work and earn above $50,000 per annum, you need to protect your income.
If you have dependents such as a partner or young children, you need to protect yourself with life insurance.
In my mind, there is only one logical reason why you wouldn’t have personal insurance cover if you satisfy the above three points.
You are bonkers.
*Once you reach 45 and above personal insurance cover can become very expensive (because statistically, this is when you need it the most) but if you are still in your 20s and early 30s you can take advantage of your age and lock in lower rates for the rest of your life. Speak to a financial planner at Master Your Money Now for more information – it is something your industry super fund does not want you to know about.
If this is a topic that you would like to discuss in more detail, please go to www.MasterYourMoneyNow.com.au/getstarted to book in your complimentary 30 minute strategy session.
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