Prioritising Insurance

Article published on 30th July 2008

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If you could only afford one 'type' of insurance, which would be the most important?

Difficult question.

In Britain research has shown that citizens are more likely to insure their possessions than they are likely to insure their jobs (income protection insurance), their health (critical illness insurance and health insurance) or their lives (life insurance). Are we right for doing so or are we wasting money and risking too much.

It seems likely to me that in the UK we are generally more likely to get our bicycles stolen our cars damaged or our property vandalised or flooded than we are likely to contract cancer or heart disease, or even, Heaven forbid, than we are likely to suddenly keel over and die.

By this logic, if we have only so much disposable income (so income that doesn't immediately get spent on rent, mortgages, food, utilities and suchlike), then it would perhaps be the wisest idea to spend it on property insurance of various sorts, because these are the things that are most likely to be lost or damaged and more frequently. Think how awful it would be if we are all as likely to contract a critical illness as we are likely to have our cars bumped...

That said, it is worth remembering that it isn't just likelihood that we should be insuring against. We insure against the value of what we stand to lose. So yes it might be more likely that someone steals or damages my bicycle than it is that I am suddenly diagnosed as having a malignant cancer, but my family and I stand to lose far more if I can't work due to critical illness such as that than we do if my bike is stolen.

Worst case scenario, I can always save up for another bike, but my family can't necessarily replace my income if I fall ill and die, and then we all stand to suffer in profound and deeply distressing ways.

So think about that when you consider what insurance products to spend your hard earned cash on. A broken window can generally be replaced in a day or two without insurance. If you fall ill or die unexpectedly, though less likely than a broken window, your household may not be able to replace your income for a very long time indeed (if ever in some cases), so what support can you offer them?

Remember, risk isn't just a measure of likelihood, it's also a measure of relative loss and gain.

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