Let needs assessment guide you on the right insurance package

Last week’s column on curbing misrepresentation in insurance sector elicited outrage from readers about the subject. It was easy to conclude from the comments that the vice is increasing in spite of tighter watchdog role.

READ: Insurance regulator must tighten policy assessment to rein in bogus brokers

A parent of a 10-year-old girl narrated how he was duped by an insurance agent to take up a child funeral cover “to meet funeral costs in case of an untimely death.” Such cases reinforce the need for insurance needs assessment guidelines for intermediaries and insurers in curbing misrepresentation.

Generally, these guidelines should lead the potential client to what suits their need.

While many could be conversant with insurance, profiling and prioritising of needs is hardly used, leaving many with covers that are irrelevant and do not meet their financial plan. Signing up for an insurance cover starts with needs analysis, profiling and prioritisation of needs (risks), determination of sum assured and affordability.

Although needs may be unlimited, this does not necessarily mean that one should sign up for every cover on offer.

Insurance is a risk management service that is paid for but the number of risks is countless. Because of this, insurance companies have come up with various products.

The primary purpose of insurance is to provide financial protection to the policyholder or his dependants against a financial loss against the insured risk. Since a child has no income, there is probably some pain but no financial loss that would result in the event of a risk except that related to the medical expenses.

This clearly shows that in taking up an insurance cover for or on behalf of a child, as a matter of priority, education cover comes first before a life insurance, accident, and even child funeral cover.

Many factors

As the one paying or the parent, you are not dependent on your child’s income, so no need for buying life insurance for a child. A cover that you need depends on your personal circumstances, which comprises of many factors and should enable your family or dependants to maintain their standard of living, but not for riches.

Circumstances that may determine the type of cover include financial needs of the family and dependants, your occupation, other financial obligations, and debts or liabilities. That is why insurance priorities differ for a young family and that of grown-ups.

Insurance as a risk transfer mechanism should not take a huge proportion of one’s income but should be in place to cover you in case of a loss. As a result of limited resources and the need to have adequate cover, priority comes first even if one has ability to pay and do so with a lot of ease.

For instance, a single person with no children, no dependants and no debt may not need to take a life insurance cover. However, in your priority list, you would find medical cover and personal accident covers are a priority. 
The same applies to a retiree who is surviving on his retirement income generated from annuities and pensions. Such a person no longer needs to insure against income that will be lost if he or she dies but would need funeral cover, medical cover and personal accident policy.

Lack of clear understanding on how to rate insurance needs has seen many parents sign up for covers such as funeral cover instead of education for children.

Although people end up with a fairly long list of preferred insurance policies, one must learn to trip such considerations based on a simple fact: ability to pay. You should only take up the most essential covers on your list depending on your financial plan and personal circumstances.

Priority list

Your priority list, therefore, should lead to policies with bundled benefits to enhance coverage. Alternatively, you can take up one but add riders to cater for less important ones.

Some of the policies that are related include accident and life. In this, you may be persuaded by a sales person to take up an accidental death cover or take both the accidental death and life covers separately.

Opiyo is training manager and coach with Tolerance Employee Financial Advisors Limited. E-mail: [email protected].