What is Insurance?

Insurance began as a way of reducing the risk to traders, as early as 2000 BC in China and 1750 BC in Babylon An early form of life insurance dates to Ancient Rome. “Burial clubs” covered the cost of members’ funeral expenses and assisted survivors financially.

Modern life insurance policies were established in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office established in 1706, was the first life insurance company in the world.

The first plan of life insurance was that each member paid a fixed annual payment per share on from one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the “amicable contribution” was divided among the wives and children of deceased members and it was in proportion to the amount of shares the heirs owned. Amicable Society started with 2000 members

Today it is an appropriate way to offset any risk facing you and your family. You may be protecting against the loss of an asset such as your car, your boat or other toys, your furniture your house or your business assets. It may be used to protect a loved one in the event of your premature death. Your family not only just lost you, but also your income. If you recognise that as a risk then insurance is one option to explore to eliminate the effects of that event. The risk of illness or accident and you losing your ability to generate an income are also risks that can be offset using insurance.

There are numerous risks in our day to day lives that can be offset with the use of insurance. You just need to decide is it appropriate to wear that risk yourself or is it appropriate to offset that risk to an insurance company and what do they want to charge you to take that risk on.

Consideration for insurance needs/costs.

When making an informed decision around your and/or your family’s prudent protection needs we suggest the following procedure is considered:

• The completion of a risk assessment profile – to ascertain your attitude to certain traumatic events
• A Needs Analysis – to put the numbers around such things as:

–       Existing debt

–       Income replacement

–       Cost of medical, legal/financial expenses

–       Future requirements – education, retirement, bequests

–       Existing capital and income

–       Understanding your situation.

 

The understanding of risk frequency as it applies to critical age groups:

–       Death/total disablement

–       Trauma (heart attack, stroke, cancer, diabetes)

–       Temporary disablement (accident or sickness)

–       Medical assistance or access to specialists.

 

Determining the four options:

–       Ignoring risk – (it won’t happen to me/us)

–       Avoiding risk – (we eat lots of vegetables)

–       Managing risk – other available options (such as cashing in super or selling investments)

–       Offsetting risk – insurance

 

–       Then prioritising to budget.

 

If you do not go through a procedure such as this you could be inclined to:

1. Ignore or underestimate the severity of risk to your overall financial wellbeing and your overall investment strategy
2. Confusing the cost of the solution with the cost of the problem
3. Guessing levels of cover.

 

Some other considerations

Your insurance premium costs and covers are likely to change dramatically as ‘risks’ rise and fall – as you go through various lifestages.

The consideration of debt repayment and the replacement of earned income are critical especially for young families. Usually a 15-20 year time frame. In your later years – medical costs become the major issue and your retirement income capacity should prepare for this requirement.

At FoxPlan it is important for you to know that we take informing you appropriately around the severity and frequency of risk as a critical task. One for which we are legally obliged to outline but more importantly one for which the consequences of under insurance from a combined experience in excess of 100 years of experience with family, friends and clients has increased our resolve.

A simple model that FoxPlan will discuss with you is frequency vs Severity. Ask us how it works?