Claim shows true value of insurance

I don't get asked a lot, but it has come up a few times throughout the years.

"It is until you need to make a claim," is my normal response.

Not everyone views insurance the same way. I know some people that purposely don't insure, or consciously self-insure.

There is no right or wrong answer. Insurance is well known to all of us and we inherently understand the risks of not having insurance.

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There are many types of insurance: car, house, contents, third party, public liability, life, private health and crop to name some.

In the world of professional service businesses, we also have professional indemnity insurance and other assorted levies to deal with.

While there are many types of insurance, I will focus on life insurance and the other insurances that tend to be attached, such as total permanent disability, trauma, and income protection.

I am no expert in this area, and my comments are very general in nature. There are lots of fully-qualified professionals who are best to talk to about this subject.

My sister has given me permission to tell this story, which had a profound effect on our family. She was married to a fit and healthy 44-year-old Eyre Peninsula farmer, who would be 64 if he was still with us.

He went from fit and healthy, to passing away within six months. This type of thing doesn't happen often, but it does happen.

Fortunately, there was life insurance in place and this alleviated the otherwise inevitable financial pressure.

Despite the warm and fuzzy ads the companies use to sell insurance, it is pretty much a numbers game.

Being an insurance actuary is a profession for some people. These individuals are highly skilled at calculating the risks of an event happening, which is one of the factors insurance companies use when setting premiums.

According to a letter from my insurance provider, last financial year they paid out $130 million for income protection, $130m for life insurance, $76m for trauma claims, and $42m for total and permanent disability.

To add more layers of complexity, some insurance types can be held within superannuation, with the premiums deducted from a super balance. Some people choose to hold insurance outside super and pay the premiums from cash flow.

Lots of accountants have affiliations with financial planners and they can be a one-stop shop for these issues.

A good adviser is important in lots of areas and insurance is certainly one. I have a great general insurance adviser. I trust him - he is the expert, not me - and I listen to what he says. He also listens to what I want.

Insurance can be a bit of a minefield, but in some respects, it is no different to other business expenses.