It is not a new thing that a period of recession is one where things are financially tough. This may result in people wanting to hold on to cash to spend only on important needs, not luxuries. These areas to spend money includes insurance; both life and non-life insurance which you can prioritize using importance-urgent matrix. In this post, we share 7 top reasons for recession insurance :
1. You can not predict the future.
As we go about our daily lives, we encounter unpredictable situations. These situations can comprise accidental events.
This fact is what makes life itself unpredictable. and makes the accidental occurrence more devastating if you never prepared for it.
If you were certain it will happen, you would plan ahead and avoid it but that is not the case. If there is slightest of chances that an incident could occur say like your car getting damaged or stolen then you should get the risk insured.
2. You can not control others.
We can be the most careful people in the world and mind our business by avoiding too much contact with others but this does not mean you can control all the consequences of others actions as it relates to you.
Can you control a person who drives in a drunken state or emotionally imbalanced? No! Can you control staff with a dishonest character who goes on to divert funds in his care? No! Can you control the activity at work of a loved one that could make him run late into the night and have to drive home late under heavy downpour? No! These and more are likely risks that should be catered for.
3. The current rise in the prices of goods and services.
You would be naive to think that prices of items, once it goes up, will return back 100% to the position it was.
This is a phenomenon during a recession; a sudden increase in the price of goods and services as a reflection of an economy whose GDP(gross domestic product) is in the negative or decline.
You may ask, how does this increase your level of risk and create a need for insurance? Imagine how much cement was sold like a year ago and the price now.
You built your house a year ago and you experienced a fire outbreak that razed the building down. Are you going to rebuild at the past price of cement or the current?
This applies to all property or personal effects that may be valuable to you e.g cars, photography equipment, jewelry, machines, etc.
You should also consider the increase in the standard of living which may have an adverse effect on your loved ones if suddenly you are no more in the picture or permanently incapacitated. Insurance coverage is all the more important in a recession.
4. Recession Insurance takes care of a financial setback
Businesses become successful based on working at projections they have made within a given year. In fact, owners believe their commercial ventures will continue to be a going concern and based on this thought they do 5-year projections of where they plan to be including financial budgets which encompass different parts of the business.
Now, what could happen with these structured and usually well thought out plan? A court judgment to pay a huge compensation to a member of the public who was medically affected by the consumption of your defective product, a number of staff who suddenly fall sick due to exposure from the hazards of the job or death while traveling to execute his duties or even legal fees to defend against a case of malpractice.
These and more are issues that may lead to unplanned financial setback which may almost grind any business to a halt during a recession. The smart thing is to plan for them by getting sound risk management advisory on potential risks to the business so you can cater to them.
5. Emotional effects of a loss in recession.
Many of the decisions we make and steps we take as human beings have an emotional undertone which is why even our reaction to issues and happenings can not be logically explained. A wife claiming to stay in a physically abusive marriage because of the kids, a man smoking two packs of cigarettes in the name of relieving stress or people who commit suicide when they are jilted; all these are purely emotional states that defy logic.
Let us think about this: a person who works and denies himself for two years plus to accumulate cash to buy a car which he believes will alleviate the stress of his commute, increase his prestige and earn him some respect among his friends suddenly has the car stolen or completely totaled(accidentally written off) coupled with the fact that the market price to get a replacement has increased by 25% with no increase in income. What do you see as a response? Chronic depression leading to seclusion, regular complains, lethargy, anger issues just to mention probable reactions. When buying new possessions, you should plan to insure them to prevent financial loss.
6. Peace of mind as a reason for recession insurance
Nobody plans to die but it does happen rather unexpectedly sometimes leaving big gaps in the lives of people who are connected to you in some way and this is not talking about the income loss experienced after a major breadwinner dies or is incapacitated. Some people adopt avoidance of a source of risk as a strategy to prevent death or injury but failed to realize that other sources carry their own level of risk.
A person avoids taking motor vehicles generally as a means of the commute because a loved one died from a car accident and decides transportation by train is better and safer but forgets that even trains can be derailed and much more.
We can live confidently and rest assured that even if the unforeseen circumstances should arise as a result of injury or death by accident or natural causes if we have a typical life assurance or personal accident insurance policy in place.
7. Recession Insurance and its Tax savings/rebate advantage.
In a recession, it is important to save money. You do this by using different means to reduce living expenses. You can cut back on purchases of luxury items, eating out, looking for good deals when buying essentials, turning off the gas and winding down your window shields in a traffic jam.
Do you know that in different many parts of the world you can claim tax rebates on your income? You need to ask your tax advisor about the tax rebate. It is usually backed up by law as an advantage. This is because you are taking on a personal expense to relieve the government of social expenses. You can get tax breaks on income tax and business-related tax when you have insurance in place.
You can be sure that these seven(7) reasons are useful ways and areas to adopt insurance in a recessionary period in any given economy.
Get in touch with a risk management advisor on these points or send further questions or areas of clarification as regards the reasons above and I will be glad to respond.
Feel free to drop a comment below and follow for future posts. Thanks.