As an insurance adviser, insurance premiums are part of what we cover with clients every day.

You know what, it does not matter how young or old you are, how rich or poor, the conversation around premiums is universally the same.

Let me get something clear out front. I am an insurance adviser, not an insurance agent.

This means, frankly, I do not care what cover you take or have, who it is with or how much you spend on it; so long as it is the right benefit at the right level at an acceptable premium for you.

At times I am an insurance agent, right about when you make a decision to take cover with a particular company and from the point of that decision until the cover is issued, I am an agent of that company.

For the next client, I could be an agent for a completely different company. The point is we work in your interests first, and under the law, we have some obligations as an agent of the insurer at times, but not all the time.

So what does this have to do with premiums?

Well, everything. I am about to have a conversation with a business owner who has significant risk; his business is about to spend close to $100,000 on their premiums every year just to insure him. It is a big company, and it has significant risks.

We started this conversation six months ago, as I have with several other businesses in a similar position, we are now at the point of having an offer of cover to be signed off, three that I will do this week.

When we started the conversation, his risk was about $250k per annum in premiums. This is looking at the business and all of the insurable financial issues that could befall it. 

From the death of a shareholder through to the disability of a key person and everything in between. Life personal cover and business assurance have the same issues.

If you do not have the resources to cover the risk, you need to offload it somewhere or to someone who has the resources. Fundamentally this is insurance.

The reality is; if you can afford all of the insurance covers you need, then you probably don't need it, or you need very little of it. 

Because you do not have the resources, you cannot afford all the protection you need, so you need to make decisions on what cover you do have and ensure it is going to take care of the more common and most direct risks you face.

For our guy above the decision was not about shareholders it was about debt and key people. Because the expected succession of the business was to family, this does not need as much funding. 

This has substantially reduced the cover required and the resulting premiums. In saying that we did not insure all of the key people either, as the business is paying/able to pay for the ones we have not insured.

You are thinking those are big numbers!

Yes they are, my point is they are relative to the situation.

Someone earning $50,000 per annum is going to say $250 per month of insurance premiums is expensive in the same way someone earning $200,000 per annum is going to say $2,700 per month in premiums is expensive.

It is all relative.

When you look at the major contributors to the amount of coverage recommended, debt and income are the two areas that influence the amount of cover the most.

The more income you have, the more debt you have access too, the more your insurance to cover these things is.

Someone earning $50,000 per annum is not going to have a $2,000,000 mortgage, but someone with a $200,000 income may have.

The other factor is age

When we overlay this with age things can get a bit crazy. If you are in your 50's and still have a substantial Auckland mortgage, then you are going to have substantially higher premiums. Income protection, trauma and life cover are all starting to bite premium wise.

What may be $2,000 per month in your 30's and 40's is now approaching $8,000 per month. Which is fairly scary stuff when you look at it from a personal point of view.

The goal is to mitigate the need for insurance as you get older.  By paying down debt and building wealth that you can draw on in both retirement and times of need. 

By exiting debt, you reduce the need for expensive levels of Life, Trauma and TPD cover.

With less debt and a good wealth strategy, you can also start to look at dialling back income protection too. Once you hit 50, this starts to get pricey too.

Did he just say that?

Yup, I did. The insurance guy said to focus on your wealth creation to minimise your insurable risks.

Insurance is designed to get you from A to B, usually now to retirement. However, if you build your wealth faster and effectively, you can reduce and mitigate the need for insurance.

Frankly, I hate the conversations with clients that are about the insurance being too expensive and them not having enough income to pay for it any longer. 

It means something in the wealth creation plan has not worked to plan. Unfortunately, this happens more often than not.

It is good that usually, they have not had to claim on it, not so good that they will be without cover or all of their cover going forward.

So what's your point?

Your insurance premium is directly related to your situation. The premium for all of the cover you need is always going to be too expensive. 

Someone in a higher income bracket and debt level is always going to look like crazy money when they tell you what they pay. It is all relevant.

Comparing yourself to someone else is unproductive. They are older, younger, have more income, have less income, have more debt, have no debt. All of these things distort the reality of your own situation.

I have had people come to me and say I want $200,000 of life cover. Which I have asked how did you get to that figure, which got the answer, "That's what my neighbour has." 

Cool, your neighbour who has been living there for ten years and has a substantially lower mortgage than your brand new one, add to that they have another five investment properties all of them debt free. Sorry, how's this relevant to your situation?

Aside from the neighbour not being as tax efficient as they could be, which is why they are now talking to their accountant, the situation has no bearing on the owner with one property and a mortgage. 

Aside from maybe age, family stage, and address, there's nothing else in common from a risk perspective.

So do you want to base your risk protection on what your neighbour or friend does or do you want to have a frank conversation about your risks in a way you can make some real decisions about how things will work for you?

We can also talk about what your wealth creation strategy is and help where we can, to get you going too.  

Give us an email, message, FB, txt or even call us, we can help in ways you likely haven't considered.