Why we should all start treating life insurance as an imperative

The Covid-19 pandemic has come with various risks, but also presents critical lessons. 

One of the greatest ones on financial wellness we can draw is that as an individual, you can only consider yourself financially healthy if you have an emergency fund that you can default to should an emergency strike.

Emergencies can present themselves in different forms including a serious illness in the family requiring a substantial amount of resources, or loss of a job or business. It could even come in the form of a serious accident that leaves one incapacitated.

All these scenarios remind us of the fragility of life and the need to prepare for the tomorrow that we know nothing about. It is safe to say the importance of life insurance has never been as elevated as it is today.

In general terms, people buy life insurance because of the uncertainties in life. However, as part of a solid financial plan, if you have people that depend on your income, the question you should ask yourself is what will happen to them if something severe was to happen to you.

Apart from death, a bread winner could fall sick and be left with no ability to generate an income to support their family. Should such an incident throw your dependents into a life of misery? This answer depends on you.

Traditionally, life insurance does two things. It helps individuals to protect their loved ones but is also a means to save in a disciplined manner. This is the reason insurance companies do not issue you with ATM cards. The premiums you pay therefore become a reserve fund that you can always resort to should an emergency occur.  

An important reality to always remember is that insurance does not make one wealthy. What it does is protect your downside, which could derail you from achieving your financial goals. As opposed to helping you create wealth, insurance is meant to protect what you have as you generate more wealth.

Protect what you have

There is always danger that if you do not protect what you have, you could lose all of it to unforeseen events.

Covid-19 has brought the message around downside closer home – thriving businesses interrupted overnight, jobs and livelihoods lost, travel and events cancelled, huge medical costs incurred for those who required hospitalisation and some lives lost. The financial consequences have been immense at personal, family and national levels.

Could some of these unfortunate consequences of Covid-19 be insured? The answer is yes.

Insurance works like a parachute, which in ordinary circumstances will not be available for purchase when you need it but must be purchased in advance to use when you need it. There is a saying in insurance that there is no insurance for a house on fire. The cover must be purchased before the fire occurs.

It therefore goes without saying that individuals who had some form of savings before the pandemic hit absorbed the impact less painfully than those who did not.

From a financial planning perspective therefore, those individuals that are still holding a job or running a business should not wait until they have lost them to start considering putting together an emergency fund; rather they should start now.

The Chinese have a saying that “the best time to plant a tree was 20 years ago. The second-best time is now”.

- The writer is Group Managing Director, Life Business – East Africa, UAP-Old Mutual