FOOL'S EYE VIEW
Get Insured Before It's Too Late!

By Alan Oscroft
September 20, 2001

Liverpool -- What financial product do you buy the most frequently? Most people would probably answer "insurance". Home insurance, motor insurance, life insurance, they're all pretty much essential things to have. 

Such facts are brought home hard when a major catastrophe strikes. Only yesterday, credit rating agency Standard and Poor estimated that 55 leading insurance companies (including re-insurers) will stand to lose at least $14b (around £10b) as a result of the World Trade Centre disaster. The final total is likely to come in significantly higher.

In addition to insuring against personal misfortune, many people probably own insurance products, but without knowing it, through endowment-based mortgages. So, what insurance is good to buy and what isn't? 

Bad Insurance 

The concept of an endowment as an investment can seem like a particularly bizarre one. The idea of borrowing money from a bank to buy a home, paying the interest to the bank, and investing money regularly in order to generate a lump sum to pay off the capital sum, is one that appeals to many. But if you want to go down that path, you need to buy the right thing for the right job. As many people have discovered, confusing insurance products with investment products and buying an endowment for the purpose of capital growth can be a costly mistake.  

And it's all the worse if you were sold (or mis-sold in many cases) such a product without really understanding it. How many people realised when they signed the papers that, because of heavily front-loaded charges, the average endowment takes around seven years to break even? (That is, it can take around seven years before you even get your initial money back, never mind any interest or bonuses). 

So, rule number one when shopping for insurance products is easy: Don't buy an endowment. 

Good Insurance 

Deciding what constitutes a good insurance product is a fairly logical process. If any event (burglary, death, inability to work, and so on) would cause a significant material loss that you would not have the resources to comfortably deal with, then you probably need to insure against that event. 

Buying insurance may not be as exciting as following the stock market. And it won't have the urgency of finding a mortgage when you want to buy a house. Oh, okay, insurance probably one of the dullest things you'll ever buy. But that doesn't mean it isn't important. 

How Do You Do It? 

What things you need to insure against, what level of insurance you need, and how to find the right product for you, depends on your personal circumstances. There's no "one size fits all" formula, and that's where the Motley Fool's Insurance Centre comes in. 

Home and contents insurance, car insurance, life insurance, health insurance, and something that many people forget, travel insurance, are all dealt with individually. For each one, you'll get help finding out how it works, deciding whether you need it, and choosing the kind of product that's right.  

Don't Leave It Too Late 

There are many painful lessons to be learned from recent events in America. An extremely important one is don't leave insurance (particularly life insurance) too late. 

For years, I went without life insurance. As a single man with no dependants, it was fine. But after getting married, I realised it was something that was rather important. I still didn't get round to it for years, though. In fact, it's only about 3 years ago that I finally got it sorted out.  

It suddenly struck me one day that in the event of my bodily demise (my sudden kicking of the bucket, that is, not the slow but steady demise that's causing my hair to fall out and making my clothes too small), my wife, who is a Thai national and does not have permanent UK resident status, would be entitled to precisely nothing in the form of UK benefits. She'd get nothing in Thailand either, because there isn't anything there. She'd have to go back to her rice-farming village and back to working the land. 

So think about your dependants and how they'd be placed if you suddenly shuffled off this mortal coil. And go get it sorted before it's too late. I sleep better knowing that I did. 

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