Why Does Insurance Matter? Understanding Why Insurance Is Needed

By Katrina Haskew | 16/03/2022

Insurance plays an important role in protecting your financial wellbeing when unexpected events happen. While no one plans for illness, injury, disability or premature death, these situations can create significant emotional and financial pressure for individuals and families.

Understanding why insurance is needed can help you make informed decisions about protecting your income, lifestyle and loved ones. Insurance provides a financial safety net, ensuring you have support when life does not go according to plan. The past few years have highlighted the importance of being financially prepared. Having the right personal insurance cover in place can provide confidence that you and your family are protected during challenging times.

If you do not currently have personal insurance, or you have not reviewed your cover with a Financial Adviser recently, now may be the right time to reassess your protection needs.

Why Does Insurance Matter? Understanding Why Insurance Is Needed

Why Do We Need Insurance?

Many people ask why insurance is needed when they are healthy and financially stable. The reality is that insurance is designed to protect against unexpected situations that could impact your ability to earn income, maintain your lifestyle or support your family.

The need for insurance comes from the uncertainty of life. Events such as serious illness, accidents, disability or death can create significant financial challenges without proper protection.

Here are some key reasons why we take insurance:

1. Protect Your Income and Lifestyle

For most Australians, income is one of their most valuable assets. If an illness or injury prevents you from working, losing your regular income can make it difficult to manage mortgage repayments, household expenses and daily costs.

Income Protection insurance can provide financial support by replacing a portion of your income while you focus on recovery.

2. Protect Your Family From Financial Stress

One of the main reasons why insurance matters is to provide protection for the people who depend on you.

Life insurance can help your family manage financial commitments such as:

Mortgage repayments
Education expenses
Household costs
Future financial needs

Insurance provides reassurance that your loved ones have financial support if you are no longer able to provide for them.

3. Cover Unexpected Medical and Recovery Costs

Serious illness or injury can result in unexpected expenses, including medical treatments, rehabilitation costs and lifestyle adjustments.

Having appropriate insurance coverage means you may have access to financial resources when you need them most, allowing you to focus on your recovery rather than financial pressure.

4. Provide Long-Term Financial Security

The importance of insurance is not just about managing immediate challenges. It is also about protecting your long-term financial goals.

Without insurance, unexpected events could impact:

Your retirement plans
Your savings
Your family’s financial future
Your ability to maintain your current lifestyle

Types of Personal Insurance Policies You May Need

The type of insurance you need depends on your personal circumstances, financial goals and the level of protection you require. Understanding different insurance options can help you determine what cover may be suitable for your situation.

There are a few different types of insurance that you should consider, based on what matters to you and what you would most like protected if you were to suffer illness, injury, disablement or premature death. It’s best to discuss insurance options with your Financial Adviser as they can tell you what different types of insurance policies are available, what they cover, and how to structure them in your overall financial plan, based on your individual situation and goals.

The types of insurance policies you may discuss are:

Life insurance
Total and Permanent Disablement insurance
Critical illness insurance also called Trauma cover
Income Protection insurance.

Why Insurance Is Important: Key Benefits of Having Personal Cover

FAMILY FIRST

You and your loved ones count on your income to enjoy a certain standard of living, which is why insurance is particularly important if you have dependents. It means the people who matter most in your life are protected from financial hardship if your income stopped.

LESS STRESS

Profound unforeseen illness, injury, permanent disability, and death –are not nice to think about but these events happen. If it happened to your family it would probably be an extremely challenging time, wrought with emotional stress, and even grief. With personal insurance in place, the financial stress can be reduced, allowing you to focus on getting well, and rebuilding your life.

FINANCIAL SECURITY

Illness, injury and disablement do not come cheap. If you needed funds to recover from illness or injury would you have enough disposable income to cover medical bills whilst still paying your household expenses? Could you modify the home if need be? Would you want access to the best medical cover, treatments and rehabilitation options?

Insurance provides financial security so your life can continue with as much normalcy as possible, whilst you seek the best care available.

At a time when everything else seems out of control, it is good to know your financial security isn’t!

The difference a Financial Adviser can make

Data collected by APRA found that in the case of Total & Permanent Disability cover, the “claim declined” rate was around double for claimants who arranged their cover direct with the insurer than for claimants who went through an adviser. In other words, you have a much greater chance of success with an adviser.^[1]

Understanding why insurance is needed is an important step towards building financial confidence and protecting what matters most. The right insurance strategy can help safeguard your income, family and lifestyle when unexpected circumstances arise. At Leading Advice, our Financial Advisers can help you review your current insurance needs, understand your available options and create a protection strategy aligned with your personal circumstances and financial goals.

Whether you are considering personal insurance for the first time or reviewing your existing cover, getting professional advice can help ensure you have the right protection in place for the future.

Note

^[¹^] APRA: Life insurance Claims and Disputes Statistics, June 2021 (issued 19 October 2021)

FAQs

What is the need for insurance?

The need for insurance comes from protecting yourself against financial risks that could affect your savings, income and long-term financial goals.

Why do people take insurance?

People take insurance to protect their health, income, assets and loved ones from unexpected financial challenges.

Should I review my insurance policy regularly?

Yes. Your insurance needs can change due to changes in income, family circumstances, debts, lifestyle and financial goals. Reviewing your cover regularly ensures it remains suitable.

Why do we need insurance?

Insurance is needed because it provides financial protection against unexpected events such as illness, injury, disability or death. It helps reduce financial stress and protects your income, lifestyle and family.

Why insurance is important for families?

Insurance is important for families because it provides financial support if the primary income earner becomes unable to work or passes away. It can help cover living expenses, debts and future financial commitments.

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