by Russell Hutchinson
What if you bought a product which contained features that you never used – were they still worth something?
Most of us will never reach the top speed our cars are capable of. Most people never take their four-wheel drive vehicles off-road. Half of my friends don’t use half of the features of their smartphones. And on and on. Were those things worthless?
There is a small point about insurance features to be made here. One argument has it that we should not care so much about the features in an insurance policy that make it flexible, such as special events increase options and others because they are 'rarely used' or because they ‘don’t affect the claim’. At first hearing this argument can be persuasive. If you don’t need them, don’t use them, then why consider them?
Before we explore that question let me explain how it came up. In essence a product manager was arguing that the only thing that should count is the actual cover in the contract. Be it life cover, income protection, or trauma. ‘The claim is the central issue’.
I agree, the claim is the central issue, but it is not the only one. Policies benefit non-claimers too. You might think this is a bit pedantic but the value of an insurance policy comes from the wider point: knowledge that a claim will be paid if necessary, not only when a claim is actually paid.
Put it like this. Say I buy a policy at 20, hold it for 45 years, and lapse it at 65. Have I paid tens of thousands of dollars for nothing? Yes and No. It is true I ‘got no money back’ but it is not true that I got no value: the moment I signed the form I got the peace of mind that my family was covered. So could a partner, dependents, and maybe lenders and business partners.
Other people in the shared pool of risk got paid out, and I got to live in a society where the families of people who die or are disabled get looked after. We all got value – unlucky-but-prudent claimants and lucky-but-prudent non-claimants alike. It left more resources available for minimum social protection for less fortunate people who did not buy cover.
We all won again.
If we assign value to the great big thing (the claim) that we may never use it makes sense to acknowledge some value, in proper proportion, in some of the smaller things we may never use.
Also, it’s a reminder that, contrary to what some people say, the value of insurance starts the day you buy it, not the day you claim on it.
Source: Good Returns