Our heart has been breaking in recent weeks over the massive floods affecting so much of Queensland and NSW. If you or someone you know has been affected, please know our thoughts are very much with you at this time.
At times like this, we can’t help but reflect on how unforeseen events have such a huge impact on our lives. This has always been the case and explains why systems of insurance have developed. Insurance lets us minimize the economic consequences of things going wrong.
As financial advisers, we tend to speak to clients mostly about life insurances. Life insurances are insurances that pay you or your loved ones an amount of money if you become unable to earn a living due to becoming disabled or dying. The idea is to protect you or your loved ones from the financial impact of illness, injury or death. Insurance does not prevent the bad thing from happening. But it can prevent one bad thing morphing into two.
Life insurances have been around for about 3 centuries. They started in England, and the idea was that people would purchase membership shares in what was called a life ‘assurance’ scheme. At the end of each year, payments were made to spouses and children of any members who had died. The total amount paid out varied according to how much the scheme had collected in that year, and the amount paid to each individual varied according to how many units the deceased person had paid for at the start of the year. The scheme went by the wonderful name of the ‘Amicable Society for a Perpetual Assurance Office.’ You can still hear echoes of that name in the term ‘Friendly Society,’ which was in common use until quite recently.
The idea was a simple one: each person paid a relatively small amount of money into a pool. Only some of the people paying in would die, and so their dependents were allowed to take money out of the pool.
While this system was much better than what came before it (that is, nothing), it had obvious flaws. Mainly, if you died in a year when lots of people died, your family got a relatively small payment. There was still a large element of randomness about how your family was treated.
As a result, while it is still at heart a way for people to pool money to make payments to the relatively few people who experience bad luck, life insurance has evolved quite a lot since that first incarnation. Nowadays, when you take out a life insurance policy, you and the insurer agree precisely how much will be paid if the insured event happens. And you can insure against the costs of becoming ill or injured, as well as dying. Some premiums are tax deductible, and insurances can sometimes be held indirectly through something like a super fund.
In keeping with how important life insurance is, and the fact that it can be complex, all Australian life insurers are heavily regulated. This ensures that that, if and when an insured event occurs, people receive the benefits to which they are entitled.
Helping people get their insurances in order is one the real pleasures of our work. The right insurance brings great peace of mind. And, in those really sad times when the insured event happens, helping clients and their loved ones receive their benefits lets us ease the pain just a little.
So, if you or someone you love needs to talk life insurance, please do not hesitate to get in touch.