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Insurance or self-insurance?

How far can your rainy-day fund go for you? Building your emergency savings is always a good idea, but when it comes to protecting your financial future, it may not be enough on its own.

Here are some things to consider.

What is self-insurance?

Self-insuring means setting aside funds to pay for future losses, rather than taking out insurance. One of the key steps to financial wellbeing is having a rainy-day fund for emergencies. When something unexpected happens in life (like losing a job, or needing medical care), your emergency fund can step in and help you get through it.

However, it can take a long time to save a large sum of money. Some recommend setting aside at least three-to-six months’ worth of expenses. But even in that case, it may still not be enough to cover unexpected costs. 

Kiwis are a generous bunch, and in recent years, crowdfunding platforms like Givealittle and GoFundMe have been helping many people fundraise for financial support. However, if you’re looking for financial independence, nothing can replace the peace of mind that insurance can provide in terms of timing and certainty of funds. Which brings us to the next point…

Why you may need insurance

Did you know how helpful personal insurance has been to Kiwis’ lives? According to the Financial Services Council (FSC), $1.4 billion are paid on average in claims each year. Plus, more than 1.4 million New Zealanders had some health cover by the end of 2019. 

It goes to show the value that insurance brings to Kiwis’ lives, acting as a safety net if the unexpected were to happen. Having insurance is all about giving yourself more options when you need them most. 

Here are just some of the many benefits of having insurance, depending on the policy (or policies) you take out:

  • – Fast-track your health by avoiding long waiting lists and get faster access to private treatment.
  • – Get access to some non-public funded medications that wouldn’t otherwise be easily accessible or affordable.
  • – Replace up to 75 per cent of your gross income, for a set period of time.
  • – Secure financial support for your family after you’re gone, and more.

The benefit of combining emergency funds and insurance

If there’s anything we know for sure, it is that life’s unpredictable. Unfortunately, anything can happen in our financial or personal lives at any point. For example, you may fall ill again, or run out of your rainy-day fund all in one go. In that case, you may need to take on debt, and you might not be able to use those savings towards your financial goals (like a home, or retirement).

The good news is – when it comes to protecting your financial needs, having both a rainy-day fund and personal insurance can make a big difference. In combination with your cover, having some savings on your end can help you:

  • – Extend or select a longer wait period on your insurance – because you can afford to wait longer before your cover starts to pay. And this may also save you money, as the shorter the wait period is, the lower your premiums generally are.
  • – Increase or choose a higher excess – because you can afford to pay a bit more upfront out of your emergency fund (and the higher the excess, generally the lower your premiums).
  • – Be comfortable with a lower level of cover – for example, if you have income protection, you may choose to replace a lower portion of your income rather than the maximum allowed, which is 75 per cent of your gross income.

In sum, having both options in your toolkit can help take some of the financial pressure off, as well as allow you some peace of mind in trying times.

Like to talk?

Get in touch. We are here to help you secure an appropriate level of protection for you and your family. If you have any questions, big or small, get in touch anytime.


Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

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