Should I Self-Insure for Health or Trauma Insurance in NZ?

Should I Self-Insure for Health or Trauma Insurance in NZ?

Introduction

Self-insuring means relying on your own savings instead of having an insurance policy to cover medical treatment, accidents, or lost income. It’s an appealing idea—cutting costs, avoiding premiums, and staying in control of your money. But is it realistic? While some Kiwis consider it to save money, self-insuring could actually be the riskiest move of all. Read on to learn why.

What Does Self-Insuring Mean?

Instead of paying an insurance company, you build your own financial safety net. The goal is to have enough savings or assets to cover major expenses, such as a serious illness or injury, without needing an insurance payout.

Pros of Self-Insuring

• Cost Savings Over Time – No ongoing premiums to pay.
• More Control Over Your Money – Funds can be invested or accessed as needed.
• Potential for Wealth Growth – Savings and investments can grow over time.

If someone has savings, that is great! But you don’t have to go all-in on self-insurance to save money. A structured insurance policy can use your emergency savings in a crisis, keeping your payments down while ensuring you still have coverage in place.

Risks and Downsides of Self-Insuring

• Takes Time to Build Sufficient Funds – A large financial cushion doesn’t happen overnight.
• Your funds can only be used once - unlike a reinstatement of funds with health or trauma insurance you will need to raise funds again starting from scratch.
• High Cost of Living in NZ – Kiwis have lower average savings compared to other countries, making it harder to accumulate enough to self-insure effectively.
• Unexpected Life Events – A sudden illness or injury can drain savings quickly or occur before you’ve saved enough funds
• No Immediate Lump Sum for Medical Emergencies – If funds are tied up in investments, they may not be accessible when needed.
• You may need to borrow money - If you suffer an event that costs a significant amount of money you may need to use a credit facility to cover the full sum of treatment or part thereof. Credit facilities incur interest rate costs and/or fees. Furthermore, if your condition or event prevents you from earning an income you may not qualify for credit facilities such as credit cards, personal loans or additional homelending due to loss of income. 

Many people have the best intentions to self-insure, but in reality, it takes a high level of financial discipline to build and maintain a safety net large enough to cover serious medical events. Without consistent saving and investment strategies, even well-meaning plans can fall short when unexpected costs arise.

Key Considerations Before Self-Insuring in NZ

• Your Financial Position – Do you truly have enough assets to replace lost income? Most people underestimate what’s required, especially in the event of a permanent medical disability.
• Dependents & Responsibilities – Do you have a mortgage, kids, or other financial obligations?
• Debts & Expenses – Would your estate cover outstanding debts and ongoing living costs?

Who Might Benefit from Self-Insuring?

• High-net-worth individuals with significant liquid assets.
• People with no dependents or major financial obligations.
• Those with passive income streams that replace a salary.
• Business owners with structured succession or buy-sell agreements in place.

Final Thoughts – Is Self-Insuring Right for You?

While self-insuring may seem like a good way to save money, it comes with significant risks. A hybrid approach—where your savings and an insurance policy work together—can often provide the best of both worlds. If you’re unsure about your options, consider speaking with a financial advisor to create a plan that balances cost savings with essential protection.