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Insurance: A Necessary Evil?

Insurance is often described as a necessary evil that’s required to protect your interests… be that your health, vehicle, home, personal belongings or even your ability to make repayments on a loan.  Certain insurances are compulsory, such as car insurance, and some just make sense, such as medical insurance, yet there are many insurance products sold on the basis of fear mongery.

This articles looks at a number of different types of insurance with a view to considering whether these are safety nets we could live without when looking to streamline our financial affairs.  Insurance, whilst a financial services product, is actually an emotional purchase based on our innate desire to avoid suffering. This is why it’s good to reflect on the likely return on investment from a pure financial perspective in order to work out whether insurance is a necessary evil or an unnecessary expense.

TRAVEL INSURANCE

If we honestly felt we were going to have an accident whilst on holiday we would probably stay at home.  However, Murphy’s Law has a funny way of showing up in the few weeks that are designed for pure enjoyment.

Unfortunately, when abroad medical costs can quickly spiral out of control.  Imagine the cost of having to dispatch an emergency helicopter for instance or the daily cost of life support; should that be required.

Your health is your most valuable asset and in the UK we have the safety net of the NHS, yet when travelling, that safety net simply isn’t there.  In certain countries, if you don’t have the money to pay for your treatment that can be several thousands if not tens of thousands of pounds they will literally turf you out of hospital.  Then, there is the issue of getting home as many commercial airlines will not transport a sick or injured person back home.

The point is that travel insurance seems a bit of a grind and unnecessary expense, but if you ever need to used it, the value will be phenomenal.  Indeed, it could literally save your life. Therefore, out of all the insurance policies to consider taking out, a decent travel insurance policy would appear to be a wise investment.  

That said, it would appear some of the very cheap policies on the market have so many exclusions you would be lucky to have a claim honoured.  You’ll also want to be particularly careful with terms that exclude claims made as a result of an act of terrorism, as in this modern age, if you were caught up in such an event, this is exactly when you would want your travel insurance policy to kick in!

GADGET INSURANCE

A surprisingly expensive form of insurance is gadget insurance.  This is becoming increasingly necessary as we take more and more gadgets everywhere we go, and all it takes is an accidental spillage to render the device useless.

This insurance product, however, is known for being difficult to claim against as many insurers seem to try to wriggle out of honouring claims due to some exclusion or another.  With this in mind, it might be better to just put some money aside, so that if you ever needed mobile computer repair you have a pot of cash reserved for the occasion.  In consideration of the high annual premiums and the even higher deductibles this might be a more sensible and certainly less hasslesome way forward.  

That said, an important thing to consider is that your home insurance policy or even your bank account might already provide adequate cover for your gadgets, both at home and abroad.

LIFE INSURANCE

Life Insurance is an interesting concept, as insurers tend to like to insure against risks that might happen; rather than those that definitely will.  Some view life insurance as being akin to an investment fund that pays out upon death, however, if that’s the case why not just pay a monthly amount into an offshore savings account or a bucket of cash kept under the bed?

Aside from the obvious tax evasion issues, the main benefit of life insurance, is that it covers you in the event of your death irrespective of age; meaning from a purely financial perspective, it can offer a decent return on investment if you were to be unfortunate enough to die prematurely.

In summary, of all the insurance products, life insurance seems to have the least direct financial benefit to you as an individual.  That said, it would benefit your family in the event of your death.

So, there you have a quick round up of some of the more common optional insurance products available and hopefully this article has provided some food for thought in terms of whether these insurance products are a necessary evil or just an unnecessary expense.