As another year begins it’s tempting to return to my usual recommendation to take a fresh look at your insurance arrangements – and all other financial arrangements for that matter – to check that everything in place remains appropriate…however as an insurance broker I thought perhaps that would become more interesting (and possibly seem more objective) if it included encouraging people to consider not insuring assets as well as insuring them.
So what do I mean by that? Let me explain…
There are certain types of insurance that are required by law, motor insurance being the best known for individuals, and Employers Liability insurance for all business who employ people to work for them. Perhaps less known is that exotic animal insurance is also a legal requirement for owners of such animals….
Then the most pressing level of cover is insurance that people/businesses “have to have”, whilst not being required by law; for example if you have a mortgage on a property a requirement of the mortgage lender will be that a certain level of insurance is in place on the property. Similarly for a business it is commonplace to have a requirement for Professional Indemnity insurance to be able to trade, for example a solicitor, GP or insurance broker for that matter!!
So in essence any insurance policy that is bought by an individual or company beyond this is done so voluntarily because they believe that they have assets that are worth protecting. Obviously I am not suggesting for a moment that you should cancel every policy that you have in place but it is a worthwhile exercise to review the insurance you have in place and ask yourself the following questions:
- Are these policies accurate, up to date, based on correct information and with reputable insurance companies? If the answer to this is “no” then it is entirely possible that you may not be able to claim on the policy that you are paying for anyway…
- Which policies do you have to have, either legally or for any other reason? Make sure that the policies you “have to have” meet the requirements that they are supposed to so that you are not in breach of mortgage terms etc
- What circumstances are you insuring against and why?
Once you have answered the relatively mundane first 2 questions then there is a much more subjective question about what you are insuring and why, and in practice you should be able to work backwards from the questions: “what would I like to be able to make an insurance claim for” AND “what level of loss am I prepared to cover the costs of myself”.
In my experience not enough people think this through as it tends to help people work out their attitude to risk which is absolutely individual and often has very little to do with wealth or assets. There is a world of difference between not having assets insured because you just haven’t got round to it and having taken an proactive decision to “self-insure” a certain amount.
I often discuss self-insurance with clients, either in the form of policies with very high excesses or deliberately excluding items from cover, and am a huge advocate of this when done in a thought-through way as it often helps to reduce insurance costs whilst maintaining top quality cover, and obviously the self-insurance/insured mix can change as circumstances allow. However I would always recommend making sure at the very least that watertight cover is in place for a catastrophic/total loss…even the wealthiest would be a little upset at having to self-fund the building of their house or a liability settlement for instance!
Hopefully that provides some food for thought. Good luck for 2014!