Is insurance a gamble?

Decidedly not. But the other week I met someone who likened buying insurance to putting money down on a game of chance. Risk, according to him, was just the odds we’re running that something bad will happen. You’re betting against the insurance company.

I was not convinced.

In his world, you put money in and play those odds, making a bet whether a disaster might happen. If you’re a gambling sort and can stomach the risk, you can skip insurance altogether, leaving it all to chance.

But gambling is meant to be fun, isn’t it? The way he was describing insurance, it sure didn’t sound that way. He looked at it as a game that you’re forced to play, a game that separates you from your money against your wishes, a game where you always lose. You find yourself betting against the house (in this case, the insurance company), and we all know that the house always wins. Sigh.

Something’s off kilter here. If you talk to someone who manages risk for a living, whether for a government or a company, their outlook is completely different. Life comes with risks, and each of these needs to be identified and planned for. Protect the things that are important, and you’re sweet.

Insurance is just one way to do that. By pooling together the risk of, say, leaving our children stranded with no money if we die, we are able to cover that risk through life insurance. We can do that in other ways, too – such as through our whānau, or by self-insuring through our own finances – but the risk still needs handling. It doesn’t go away just because we brave the odds. So this has nothing to do with whether we’re a gambler or not. We may be the wildest player there is and love the long shots with the horses, but if we have children, or anything important to us for that matter, we need to manage the risk that something will happen to us or them.

Right. So that said, next step is to make sure we’re not paying too much to cover our risks. Once we’re covered, our money needs to move on and grow in a wealth of other ways.

Top tips to save on insurance

1. Check out all the options to reduce premiums. These include choosing a higher excess, a longer waiting period, a shorter policy term, or even a specific exclusion that makes it cheaper.

2. Shop around. We might immediately think of the usual insurers or banks, but there are also sites like lifedirect.co.nz to help compare policies.

3. Skip the bells and whistles. Some insurers may offer simpler products that are cheaper, yet are still enough to protect what’s most important.

4. Buy only what’s needed. Not everyone needs every type of insurance. A qualified insurance adviser can help examine our risks and priorities and offer solutions to match.

5. Self-insure. If we have significant savings, a family inheritance or other windfall, we may opt out of buying insurance and put away those funds to protect ourselves or our assets..

6. Look after yourself and stay healthy. The premiums we pay for life insurance policies are based on our past and present health.

7. Understand the value. Cutting costs is important, but it’s not all about premiums and price. What do you get for your money? For life insurance, a site such as life-info.org.nz can help us understand what we’re paying for so we can gauge whether it’s worth it.

That’s far better than leaving it to games of chance.