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Should life insurance be included in the royal commision into banks and superannuation?


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When you are young, perhaps just married, or with a child, it's easy to be convinced that it's a good idea to protect your family in the event of a devastating event by taking out death cover life insurance. The premium is relatively small in relation to the protection it offers. As you get older, the premium increases, sometimes so does the cover amount. But there comes a time where one has to weigh up whether to continue to pay the increasing premium, or dump the policy and throw away all the money paid so far. If you want anything back, you have to die. In the meantime, the insurance company is stacking your money on the edges, and your agent or "managing representative", who does absolutely nothing, and many of whom you don't even know because your agent has retired and his portfolio reassigned, continue to receive trailing commissions on every payment you make. This is because it is 'Insurance", not "Assurance". Insurance, like car insurance, is protection against something that might happen. Assurance accepts that we are all assured of dying, provides protection in case of dying early, and pays out on maturity. It affords the opportunity to cash in if you wish at an early stage. In other words, insurance is a legal protection racket. Each year is treated as a fresh contract, so the premium jumps accordingly. No consideration is paid to the premium paid previously. Sure, you can choose not to renew the policy when it expires, and loose the lot, but at least premiums should be capped at a certain point. When you get to pension age and are paying one third of a fortnight's pension in insurance premiums and are unable to pay the ever increasing gas and electricity bills, something is definitely wrong.



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Insurance provides protection against an anticipated event. On the other hand, Assurance tends to provide protection against a definite event. The two words in general parlance mean the same, with "insurance" being the term used more commonly, probably because of the linguistic laziness of the Yanks. However, insurance is a bet while assurance is like a savings account with a bit of a bet on the side


Here's where Insurance companies make their dough. The duration of insurance is only one year, in essence, the policy is renewed on the expiry of the term. On the flip side, assurance is for the long term, which operates over a number of years. You can insure against things like illness, property damage and even death within the term of the policy. If nothing happens for which you can make claim, you do your dough. The insurance companies are betting that the odds are in their favour that the insured event does not occur.


Assurance on the other hand is usually only applied to longevity. You agree to pay the Assurance company a certain amount of money on a regular basis for a period of time, and the Assurance company agrees to pay you an agreed amount if you drop off the perch before the agreed time is reached. The Assurance company is betting that you won't die before the agreed time. There are two types of Life Assurance - Whole of Life and Endowment Assurance.


With Whole of Life, the Assurance Company actuaries work out how long the average person of the insured's age is likely to live, and from that they set a premium that has to be paid so that at the expected time of death, the agred amount has been paid. If the insured carks it, the Assurance company loses. Endowment Assurance is a bit different. The premium is based on the expected possibility of death over a shorter period (10 years or more) plus the amount to have the insured amount paid to the Assurance company by the end of the period. Once again, if the insured doesn't make it to the end, the Assurance company loses. During the time that the assured is paying premiums, the Assurance company can use the funds for investment, thereby earning more money that is needed to cover claims.


Endowment policies were a popular way for people to save for future goals, while having the security against untimely death. These policies were also used by businesses to ensure they could meet long service payments to employees. Parents of new-borns were a prime market. A dollar a week doesn't seem to be much to assure a gift of many thousands of dollars when a child turns twenty-one.


So if you are looking for financial protection for your family when you eventually have to affix wings to your body, make sure that you obtain an ASSURANCE policy, not an insurance policy. That goes for assurance for the support of your family, or to assure that there is money to plant you in the manner you desire.





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And then there is the government meaning of insurance. As per the National Disability Insurance Scheme. That is where nobody pays insurance premiums and the government pays out to as few people as it can get away with.



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