INSURANCE IS NOT FOR THE RICH AND EDUCATED ALONE

Last week, fire swept through Chisokone market on the Copperbelt Province, destroying goods worth undisclosed but colossal sums of money. If you were on the scene of the inferno or watched or listened to the news, you could not help but feel sorry for the traders whose livelihood was shuttered by the fire. The affected traders implored the Government and well-wishers to assist them with funds to resuscitate their businesses.

Although insurance is critical for business sustainability and risk management, most individuals and entrepreneurs especially Small and Medium Enterprises (SMEs) still have scant understanding of the benefits of being insured, while others still hold negative perceptions towards the service.

Insurance is a peculiar concept. Because it consists in paying a defined sum today to cover a risk that may or may not materialize tomorrow, its benefits remain largely hidden and intangible. However, insurance has always existed in some form and today’s version is a product of tools developed by many traditional societies to create “confidence” among people, pri¬vate organizations and public authorities. Indeed, in many languages the words insu¬rance and confidence have the same roots or overlapping meanings.

In this week of the Business focus, we shall debunk some of the myths about Insurance and try to help you see the value that comes with being insured. Now every time a discussion arises about insurance, most people tend to misunderstand what the product is meant for while some think it is for rich or educated people who have extra money to spend or waste.

Insurance is a legal agreement between two parties – the insurer and the insured, also known as insurance coverage or insurance policy. The insurer provides you financial coverage for the losses (e.g. the fire that gutted the markets) of the insured that s/he may bear under certain circumstances. It is also a source of stability for the economy and households, smoothing the cumula¬tive consumption patterns of individuals that have to deal with random shocks. This stabilization role is apparent when natural catastrophes hit lower income countries with a lack of funding and disaster preparedness.

Experts have concluded that insurance promotes financial stability in the economy by insuring the risks and losses of individuals, firms and organizations and also relieves the tension and anxiety of individuals by securing the loss of their lives and assets.

In Zambia Industry players say negative perceptions about the insurance industry and several myths have contributed to the low uptake of insurance, a situation which needs to urgently change.

Pensions and Insurance Authority Acting Registrar and Chief Executive Officer Namakau Ntini was of the view that time has come for Zambians at all levels of the social strata to embrace services offered by the Pensions and Insurance industry in order to protect and grow their businesses and hedge against personal risks.

Mrs Ntini said lack of awareness among most Zambians on the benefits of insurance as the major contributor to the current low insurance penetration rate which is less than10 percent.

It is true the Disaster Management and Mitigation Unit (DMMU) is there to help in times of disasters but they can only do so much.

Our view is that even the government should encourage traders or farmers to insure their businesses no matter how small it may be. Since most of them get booster loans for their businesses, part of that amount must be taken towards insuring the very business they are trying to boost.

“Getting insurance is YOUR responsibility to your family and loved ones. You may hate it but it is your responsibility. You can put your life in the hands of the government. You are the captain of your own ship.”

Commenting on the 2022 sector Performance report, Insurers association of Zambia (IAZ) Executive Director Nkaka Mwashika said the reinsurance space also experienced exponential growth, which is good for the industry and industry contribution towards national Gross Domestic Product (GDP).

“It is important for you to remember that insurance helps to manage various risks. Insurance is a safety net to cushion us against the financial impact of unexpected losses, such as medical emergencies, fire, property damage, and legal liability.” He said.

Dr Mwashika also assured that the industry would work hard to maintain the growth experienced, to further enhance customer experience, and increase the insurance uptake even further in Zambia.

Everybody knows that it is vital to provide for the certainties of life, such as their children’s future education or marriage, their retirement, or loss of future income due to death, disease, or disablement of the breadwinner. The utilization of life insurance products as a comprehensive tool for these certainties of life is less understood.

One of the reasons for this is the myths surrounding life insurance. There are many misconceptions and false information concerning life insurance. Here are the 8 explores some of the most common life insurance myths, to help clear your doubts and gain knowledge that will enable you to make a sound decision. Unlike all the myths, Insurance is not an emotional decision. It is a sound risk management decision, which protects an individual against risks of:

Myth 1: Insurance is for the rich or educated.

Fact: the truth is that everybody needs insurance.

A rich man that has plenty of cars in his garage may not feel it so much when one of them is stolen because he can afford to buy another one to replace it without sleepless nights. This is not the same with the poor person or someone that is managing.

If his only car is stolen, he may not be able to replace it over a long time, and that could me end to his ownership of a car.

If the wind blows off the roof of the poor man’s house, he may not be able to replace it unless family members or friends come to his rescue. With these, it becomes clearer that the poor who may not have a reserve cash to replace lost assets when it happens truly need insurance protection most.

Myth 2: Life insurance is only useful after my death

Fact: Life insurance is a risk management tool. Risk must not only be associated with dying but also with living too long. Advancements in medicine and science are prolonging life expectancy. If you were to live till age 90 and stopped working at 60, how would you manage your expenses? Risk also concerns investments, which can be impacted by market volatility, bad financial planning, or lack of financial discipline.

Insurance can help you secure your financial future. There are various options that can help you build a corpus to make you financially independent during retirement, cover exorbitant medical expenses, or build your wealth. You will always benefit from a timely investment in the right insurance product basis your need – suitability assessment.

Myth 3: My company covers me, so I don’t need another policy

Fact: Your employer covers you only till you are employed with the company. The policy gets terminated once you leave or retire. If the organization has financial upheavals, they may even cancel the policy or reduce the benefits. In which case, you will be stranded when you need insurance cover the most.

Employee insurance may be sufficient when you are young, healthy, and without responsibilities.

However, it won’t be enough to cover your future family’s needs like children’s education, marriage, medical emergencies of aging parents, the rising cost of living, and so on. Secondly, the cover may only include a death benefit. This means you are on your own when you retire in case you do not have a financial plan in place to take care of your expenses post retirement.

It is advisable to supplement your employer-provided cover with another insurance policy that is customized to your future needs. Take a policy that can support you financially all through your living years as well as keep your loved ones financially secure in case something was to happen to you.

Myth 4: Why do I need insurance if I am young, single and healthy

Fact: Life insurance is one product that cannot be bought when needed. It needs to be bought for a time when you need it. It is a very simple adage “you cannot insure a building under fire”. It must be bought much before you need it and there are many reasons for this. Additionally, the best time to purchase a life insurance policy is when you are young since the premiums are lower and you can avail of high life cover at very low premiums.

If you have a student loan or a personal loan, this loan can be protected from becoming a burden to your parents due to any risk of death, disease, or disability as you grow older, your policy can also protect your family commitments, or cover your health-related and retirement expenses.

Myth 5: Life insurance is expensive

Fact: Life Insurance premium is the most versatile premium that can be found. It depends on multiple factors and can be adjusted to suit your premium paying capacity and gradually increased.

Myth 6: I am not eligible for insurance because I am too old/I have a pre-existing condition

Fact: We need to examine this in the context of the need for which the policies are being evaluated. Higher age can mean very attractive annuities and is a positive for these products.

In the case of a pure risk policy (term), the pricing of the products is done with average assumptions of health conditions. So, when there are ages and medical conditions that are outside of the median/average, they will need to be priced to accommodate the higher risk. In case of certain outliers to the range, they may not be priceable risks.

It is also important to note that term policies are bought to protect loss of future earning potential.

Myth 7: I will get better returns from investments other than life insurance

Fact: Product comparisons have to be made in a like to like manner. Would you compare a smartphone by breaking up its components into a phone, camera, hard disk, browser, etc.? Similarly, Life Insurance products offer multiple features and much like a smartphone could be a combination of many features: mortality risks, morbidity risks, longevity risks, guaranteed returns, market-linked returns, whole life cover, amongst others. So, the comparison of standalone features may not give the customer clarity and a holistic perspective.

The distinctive features, however, are that the proceeds of most of the life insurance policies are tax-free. Life Insurance policies typically are long-term financial instruments, which offer competitive risk-adjusted returns vis-à-vis other asset classes, in the long run.

Myth 8: Claim settlement is a hassle and the insurance company can deny the pay-out or hold a portion back

Fact: An insurance company will pay claims on policies in existence. That is the fundamental purpose of the company. In this context, it is important to remember that the Insurance policy is a contract of utmost good faith. So, the policy is only as valid as the information provided by the customer. Additionally, the premiums need to be paid regularly to keep the policy valid.

As a matter of fact, the 2022 performance of the insurance sector is cause for optimism as the sector recorded both a growth in premiums, and an increase in settled claims, which shows that the industry is meeting clients at their point of need. You do not need to worry any more about your claims. The reinsurance space experienced exponential growth, which is good for the industry and industry contribution towards national GDP.

Therefore, if you are a trader at any market or you know a neighbour or a relative who is trading any market in Zambia, before you ask them about how the business is doing, ask what insurance policy they have for their business.

According to experts, the important thing is to first determine whether you need life insurance, which kind is best for you and carefully calculate how much you need.

To realize the full economic development potential of insurance in Africa, insurers need to adapt their products and distribution channels to the specific features of local markets.

The intangible nature of insurance sometimes masks its role in development. Yet, it directly contributes to Zambian economic development by driving growth, acting as a stabilizer for local economies and households facing random shocks, and as a vector for distribution and solidarity between people. To realize the full potential of insurance in Zambia, insurers need to rethink their products and their distribution channels in line with the specific features of local markets.

Insurers are constantly adopting digitization in all their processes including the claims process to make it hassle-free.

Every family and individual has their own distinct financial needs. What might suit one may not be the best option for another. It is advisable to consult an insurance advisor to find a plan that suits you best. You can also go online and compare different policies offered by different insurance providers before you make a decision.

Insurance is an important investment and money well spent only if you find the right plan. You will understand the value it offers in the long run. Don’t let these common myths make you think otherwise.

Taking precautionary measures to safeguard ourselves from the adverse effects of disaster is a principle clearly taught by the Bible, God’s inspired Word. Proverbs 27:12 states, “A prudent man foresees the evil, and hides himself; but the simple pass on, and are punished.” Carrying appropriate levels of insurance is a means of saving for future needs, a principle emphasized in the Bible. (Proverbs 6:6-8).

The Author is an Economist and a multiple Award winning, certified financial Journalist.

Zyuulu90@gmail.com