Something that often pops up in the insurance industry and media, but what does it really mean for you.

Over insurance is where you are carrying more protection than you need and under insurance is when you have less than you need.

This is not about you having insurance or not, it is about you having the right type of insurance, at the right level for your situation.

Looking at the numbers, most households will have some form of insurance. It might be House, Contents or Car cover, it may also be Life or Medical Insurance.

What the numbers do tell us though, about 80% of households, possibly higher, will have exposure if someone was to be disabled and 75% of you would have to use the public system for medical treatment, or pay your own way for private medical treatment.

Ok so not everyone is working and earning an income. However with only 20% of working age people with income protection, and households with income protection often have all earners insured, there is a lot of under insurance in this area.

How do we really know?

With owner occupied home ownership at around 60%, and around 50% of homes with a mortgage at of some level. Assume for a moment all income protection is on home owners with a mortgage, straight off there is a 10% of the population gap for disability just on mortgage payments. If you have a mortgage on your own home, you don't have the resources to pay for it outright. If your income stops, your home is at risk.

Add to that the other 50% of owner occupied homeowners will need financial support for paying the rest of the bills. Ok so that covers 60% of people.

What about the other 40% of the population, they are renting or paying for their accommodation in some form but don't have the security of owning their home. Loss of income here can be much more dramatic. Miss your mortgage payments and the bank may sell your home, but you're more likely to still have money left over to pay some rent. Miss your rent payments and you're out on the street quite quickly.

Either way, having a disability and losing your home is not a situation you want to face.

I often hear the comment; income protection is too expensive, compared to what?

Compared to 1 month's income, yes probably. 3 months income, probably that too. Compared to the income you expect to earn from now until retirement, possibly not.

But we have ACC? Yes we do, though ACC doesn't always work all the way until you return to your own occupation. Especially when you recover but still can't do your old job. Couple this with about 75% of disabilities are not accident related, there are a few holes in the old hope plan.

The hope plan?

Yes, I hope I don't have a disability, I hope that if I do it's an accident and I hope I recover quickly.

You're hoping not to be one of about 30% of the population who will be disabled for more than 6 months before the age of 65.

The average duration for a disability claim is around 18 months, this is quite a long time, especially when physical recovery from surgery and broken bones is normally around 12 weeks. Recovery from an accident disability claim sits at about 12-14 months, suggesting there's more to recovery than just healing bones and wounds.

What about medical insurance?

Interestingly over the last 10 years, this has fluctuated and has been in decline in the last few years. The effect this has, is it puts more pressure on the public system, usually at the worst time. Boomers heading into retirement often drop rather than adjust their medical insurance because of cost, just when they need it. This is likely to put a significant strain on the system, as there are lots of them. This will mean less access to health care for everyone.

We see in the paper, if you read it, every month or so, a really sad story of someone waiting for treatment in the public system. Either it’s going to take time, or it's not considered urgent enough to even be put on a list. The one I saw in January was a woman who had gone through breast cancer treatment, she was being told her breast reconstruction was going to take 2 years to get to.

Cancer being cancer, a positive outlook has a huge impact on patient outcomes, the one thing that could make a huge difference in this case, isn't going to be provided for 2 years. That's a long time for someone recovering from cancer.

Again the hope plan comes into play, I hope it's something serious enough that they treatment me really quickly, and I can recover quickly. I'm afraid that doesn't happen very often.

Please don't get me wrong, I'm not slating the public system, they do a great job with the limited budget they have. They do a fantastic job with treating life threatening conditions and stabilising you. It is the on going treatment from here, that stretches the resources.

Unfortunately, the public hospital system is the ambulance at the bottom of the health care cliff, literally. The public system spends a lot of time and money treating people for conditions that are often considered self inflicted. Diseases from poor diet, poor exercise and poor choices. Some of those poor choices being the things people do under the influence, on a Friday or Saturday night, and generally involve falling of some sort.

How do you fix the public medical system?

More money! This translates to more taxes. More taxes isn't popular and a government introducing more taxes is unlikely to be re-elected, so not likely soon. This is where your choice about spending more on your own health care comes in. We're not going to see everyone embrace a medical tax, but you can choose to contribute more in this area, for a higher level of medical treatment when you need it. This is called medical insurance.

Yes I often hear the 'I pay taxes' statement, and yes you do. Your tax dollar buys you the public medical system we now have, not the one you expect when you need treatment. The only way to have the medical system you expect in New Zealand today is; to have a good adviser and a good medical insurance plan. The former will arrange the latter.

Why have an adviser for this, rather than going to say Southern Cross directly? If you have an adviser they should be regularly reviewing your situation to make sure you have; the right plan, at the right level and you get the most out of it.

As an adviser I often find things clients can claim on their existing policies that they didn't know they could. Because of this it's often more expensive for you to have a direct with provider policy, than to take it with a good adviser. Your monthly premium will be the same, it's what you don't know you can claim, where the cost or lack of return comes in.

So the real question, do you want to continue with the hope plan or do you want to do something about it?

Give me a call, at the very least you can get some reality on what it will actually cost and how much you can get covered.

Disability may be 30% before the age of 65, but I'm yet to see anyone who hasn't claimed on their medical cover by age 65. If you don't have income protection then you need to get better quick, relying on the public system to do that for you is fraught. At least have medical insurance.

Get in touch, we can advise on the most cost effective way to improve your access to medical treatment when you really need it.