I first heard this story when a friend of mine posted about it the other day: The All England Lawn Tennis Association, which organises the Wimbledon tennis tournament, has been paying pandemic insurance for the past 17 years at a cost of around £2 million per year. That’s a pretty hefty premium for what people are calling a “black swan event”. My friend wondered if there was a person in their annual budget meeting who had to fight to get that paid every year.
Many people face a similar dilemma. Paying for insurance every year to cover an unlikely event can seem like a waste of money. The Japanese even have a term for someone who buys more insurance than they need and ends up poor for it: 保険貧乏 (hoken binbou)
Of course there are some risks that really do need to be considered. You are not even allowed to drive your car without proper insurance. The types of insurance that are important from a financial planning perspective are:
- Health insurance
- Income protection insurance
- Critical illness insurance
- Life insurance
Health insurance – if you pay into the Japanese national health insurance system, you are covered for 70% of the cost of medical treatment in Japan. That’s enough for visits to the clinic for a sniffle, but may leave you with a larger bill if you are hospitalised for a long period. Private health insurance is a good way to cover the other 30%. It can also be useful when you travel overseas, and could even end up covering totally unforeseen treatment later in life – see here.
Income protection insurance – what if you were sick or injured and unable to work for a long period? Your company may look after you for a while, but after that you are on your own. With income protection, you can cover up to 75% of your current income up to age 65 if you are unable to work. This is especially valuable when you think that the loss of your income would also prevent you from saving and investing for your future, making life even tougher after retirement age.
Critical Illness Insurance – unlike income protection, which pays a regular income, CII pays out a lump sum on diagnosis of a critical illness (cancer, heart attack, stroke etc). This money allows you to take time off, get treatment and get well again. We are lucky to live in an age where we are likely to make a full recovery from a serious illness and be able to go back to work, but it’s important not to go broke in the process.
Life Insurance – do you have any loans / liabilities? Life insurance makes sure you don’t leave those behind for your family if something happens to you. It also means you can continue to provide income to your family after you are gone. Health and income protection come first, but once you have a family and a mortgage, life insurance becomes an important part of your protection strategy.
If you are a short-term expat, it’s best to look for insurance with companies in your home country, or via an offshore provider. If you are long term, it would make sense to get something local. My experience with insurance in Japan is that the products are all very similar, so finding a salesperson who you get along with who isn’t pushing you to buy cover you don’t need is the most important thing.
If you think you might be missing some important coverage, it may be time for a protection review. You never know when something unexpected might happen.
And by the way, when they cancelled Wimbledon this year, the payout to the Lawn Tennis Association for £34 million in pandemic insurance premiums over 17 years?
If you insure yourself smartly, it’s worth the money.