Are we spending too much money on insurance?

29 November 2019

Articles with tips on how we can save money on our insurance are commonplace. It typically suggests that we increase our excess, pay our premiums for the year instead of monthly, remove extras (e.g. excess-free glass cover) that we may not value and shop around. All sound suggestions.

However, we wanted to explore a different angle and see what the numbers tell us about the amount we are spending on insurance in New Zealand.

Are we really spending too much on insurance?

Let's look at the average household income and how much of it goes to insurance.

The average household spent $3,245 on insurance a year in 2016 (Statistics NZ figures). In the same year, the average household income was $96,027. From these figures, we see that the average NZ household spends approximately 3.8% of their income on insurance. This seems like a relatively small percentage of household income, but what does this look like after taking away taxes?

Assuming the average household income figure is based on two incomes, and splitting it right down the middle, after tax the household now has $81,160.

Insurance account for about 4% of after-tax household income.

Turning back to the numbers, let’s look at how the average insurance spend compares with other household expenses.

In 2016, NZ households spent 16% of before-tax income on food, 2% on alcohol and tobacco, 9% on recreation and culture, 15% on transport, with housing and utilities taking up the lion's share at 25% of income.

The numbers seem to conclude that the average household insurance spend in New Zealand is only a small portion at 4% relative to income. The same amount that some might spend on coffee in a year if you consume two coffees a day ($9 a day for a year = $3,285 a year).

Why do us consumers generally feel like insurance is expensive and we're spending too much money on it?

Do we view insurance as expensive because it is something we pay for but hope never to use? Is it because the insurance experience is typically painful? Nobody likes paying for a bad experience. Or is it because of the negative perception that has tainted the industry? Therefore, not only do we not see value, we feel burdened by the shortcomings of the industry.

Value from insurance is usually seen as a successful claim - when we get money back when something bad happens.

Can insurance provide value in other ways? Can our insurance experience be redefined so that we are getting more out of it? This is something we are constantly asking and challenging ourselves with at Quashed.

Check out our brand new platform and let us know if you find it helps with your insurance experience. Let us know how else Quashed can improve your experience and perception of insurance.

Quashed is about creating a simple, transparent and trusted experience for you and me when it comes to protecting the things that matter to us.

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