Kiwis Trapped in Vicious Cycle of Debt

Kiwis Trapped in Vicious Cycle of Debt and Underinsurance

Three quarters of New Zealanders are trapped in a vicious cycle of debt and underinsurance leaving their families exposed to the risks of financial hardship if a wage-earner dies or is too ill to work, according to an internet poll carried out on behalf of American International Assurance New Zealand (AIA), one of the country’s fastest growing life insurers.

The survey shows that 40 per cent of Kiwis would not be able to cope for more than three months if anything happened to their ability to earn a living.

The AIA research revealed that almost half of all New Zealanders have absolutely no cover on their lives or their health (i.e.: life, medical, income protection or critical illness insurance) and only a quarter are confident that their level of cover would be sufficient to look after their family in the event of death or serious illness.

According to Nick Scarlett, AIA Chief Executive: `We know from actuarial studies that around 880 people with dependent children will die in New Zealand each year. Our new research found that three quarters of Kiwis worry that their families would be exposed to financial hardship because of inadequate insurance; they claim they cannot afford to pay the premiums even though their unearned expenditure funded through borrowings has risen by 16 per cent over the past year to an historic high. The average family has $125,000 of borrowings in mortgages, personal loans and credit cards and many of them have no idea how they will be able to pay that off if anything untoward happens.’

The research found that of those that do have insurance just over 37 per cent have basic life insurance, 33 per cent have medical insurance, and 13 per cent have income protection insurance, while only 9 per cent have critical illness cover.

In the short term just over half of those surveyed thought they would be able to muddle through in the event of illness or loss by drawing on savings and investments, borrowing from family members, selling assets or property and borrowing from friends.

But 20 per cent of respondents believed they would not be able to manage for a month on their own resources; a similar number would be able to manage for between one and three months, with slightly less feeling they could manage for up to six months. Significantly, less than a quarter felt they could manage for a year or more.

Nick Scarlett explained: `We hope this survey will help raise awareness of the need for insurance cover. The country has experienced rampant consumer spending funded by borrowing over the past few years. Most people insure their family car against loss or accident, but somehow don’t see their family’s most important asset – the ability to earn an income and provide for their family’s future financial security - as something which may also be at risk.’

AIA offers a wide range of specialist risk management products for personal and business use and distribute via independent financial advisers.

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