The True Cost of Underinsurance in New Zealand: Impacts on Families and Businesses

Despite recognising the importance of insurance, many Kiwis remain underinsured, leaving themselves vulnerable to financial hardship when unforeseen circumstances arise.

The Scope of Underinsurance in New Zealand

Recent studies highlight the extent of underinsurance among New Zealanders:

• Life Insurance: Only 41% of New Zealanders hold life insurance policies, leaving a majority without financial protection for their families in the event of their untimely death.
  
• Health Insurance: Just 39% have health insurance, potentially exposing themselves to significant medical expenses and longer wait times for treatment.
  
• Income Protection: Alarmingly, only 20% have insured their income against sickness or disability, despite the potential for such events to disrupt financial stability.
  

These figures underscore a substantial protection gap, exposing many individuals and families to financial risks.

Impacts on Families

Underinsurance can have profound effects on families:

• Financial Hardship: Without adequate life or income protection insurance, families may struggle to cover day-to-day expenses, mortgage repayments, or education costs if the primary earner can’t work or passes away.
  
• Limited Access to Healthcare: Without health insurance, individuals may face long wait times in the public health system or incur significant out-of-pocket costs for private treatment, affecting both health outcomes and household finances.
  

Impacts on Businesses

The underinsurance trend also extends to New Zealand’s business sector, particularly small and medium-sized enterprises (SMEs):

• Asset Underinsurance: Up to 70% of SMEs are underinsured, meaning they lack sufficient coverage to replace or repair assets at current market values.
  
• Business Interruption: Inadequate cover for business interruption following a disaster or theft can result in long-term downtime or even closure, especially if fixed costs continue without income.
  

The Hidden Risk: Set and Forget Insurance Policies

A common but often overlooked cause of underinsurance in New Zealand is the "set and forget" mentality. Many individuals and business owners take the positive step of putting insurance in place but leave their policy untouched for years. As life evolves, so do your risks—and if your insurance doesn’t keep up, you may find yourself significantly underinsured when it matters most.

Why Policies Become Outdated

Even those who start with the right level of cover can quickly outgrow their policy due to changes such as:

• Increased income that isn’t reflected in income protection cover
  
• Marriage, children, or dependents increasing financial responsibilities
  
• Purchase of new assets like homes, vehicles, or valuables
  
• Business growth, new equipment, or expanded operations
  
• Inflation and rising rebuild costs, especially in housing and construction
  
• Changes in health or employment status
  

Strategies to Keep Your Cover Relevant and Adequate

To avoid falling into the trap of outdated insurance, consider the following steps:

• Annual Reviews: Set a reminder to review your policies annually and adjust sums insured or benefits to reflect your current circumstances.
  
• Life Event Check-ins: Reassess your insurance after significant events—getting married, having a baby, buying property, or starting a business.
  
• Professional Guidance: Work with a qualified insurance adviser to ensure your cover aligns with your needs.
  
• Updated Valuations: Request updated home or asset valuations every few years to avoid being caught short by rising replacement costs.
  
• Digital Tools: Use policy tracking apps or portals to stay up to date and simplify your insurance management.
  
• Bundling Policies: Where suitable, consolidate your policies with one provider to access discounts and streamline your portfolio.
  

Factors Contributing to Underinsurance

Several issues contribute to underinsurance across New Zealand:

• Cost Concerns: Rising living costs have led some to forgo cover or reduce limits to save on premiums.
  
• Lack of Awareness: Many people simply don’t know what their policies do (or don’t) cover.
  
• Product Complexity: Insurance can seem overwhelming or difficult to understand without guidance.
  

Conclusion

Underinsurance poses serious risks to the financial well-being of New Zealand families and businesses. The consequences of being underinsured can be devastating, whether due to cost-cutting, changing life circumstances, or neglecting to update policies. Regularly reviewing your cover and seeking expert advice is essential for ensuring your policies reflect your current lifestyle, income, and risks.

Don’t wait for a crisis to discover gaps in your protection—contact our team today for a personalised review of your insurance portfolio. Let us help you stay protected, not just covered.