Ariel Munin

Insurance in Simple Terms - Risk Insurance

21/09/2011

In the previous chapter we looked into the risks facing individuals and identified three: death, retirement and disability (loss of the ability to work). Each of these possibilities requires discussion. This chapter will consider the possibility of death. Before beginning this chapter, we should knock on wood and ask for protection against the evil eye.

From birth, we know that one day we shall have to leave this world. We hope to reach a ripe old age, not die young. At celebrations, we wish each other:  "let's meet only on happy occasions", but we should say: "let's have lots of celebrations" because unfortunately there are many sad occasions for meeting with family and friends. It is important to understand that death, and especially early death, is an economic risk requiring our consideration.

For example, consider the case of an independent 24 year-old bachelor, working at his first job for low pay. His parents and siblings are not financially dependent on him. If, unfortunately, he should die, they will all mourn him, but will not be in want financially. Therefore, we could say that apart from the need to cover relatively small expenses, this man does not require life insurance.

Now, let’s take the instance of a 50 year-old married man with many assets yielding him a high monthly income. If, sadly, he should meet an early death, his family will continue to receive that income. In fact, he also has no need of risk insurance. After his death, everyone will be sorry for the widow and children, but the family’s standard of living will not be adversely affected by his death. Financial assistance will not be needed.

This suggests that insurance against the risk of death depends substantially on what happens from an economic standpoint following a death. When an insurance agent sits with his client to analyze his economic position, he takes into account the income of both spouses and the family’s obligations vis-à-vis its existing assets. He also examines the family’s standard of living and calculates the economic vacuum that might result from the death of one of them. On the basis of these data, he calculates the cost of acquiring insurance against the risk of death.

From an examination of the national average for risk insurance coverage, we found that approximately NIS 270,000 are expended, an amount equal to about NIS 5000 per month for just 5 years. Each of us should sit down with his insurance agent to determine the amount needed by his family. The cost of such insurance can range from tens to hundreds of shekels a month, depending on the family’s needs.

In summary, it is important to understand that a person's financial planning must include consideration of the day when he leaves this world; he should  not adopt the philosophy of “after me the flood”.

*Translated by Elsa Hadar

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