How to think about insurance

Risk is a notoriously difficult thing for the human brain to deal with. We’re just not good at knowing how to think about things that have a very small probability of happening … especially if that thing is really bad if it does happen. 

In an ideal world there would be an expert who could help us with that – some sort of risk management advisor who understands probability and is in our corner helping us evaluate and manage these risks. 

Unfortunately what we have instead is an insurance broker – someone who is in the business of selling insurance policies rather than helping us manage our risks. The problem with this is that we only end up talking about insurable risks. 

So we talk about, manage, and insure the financial outcomes of events like dying, or being too sick to work, or getting seriously injured (life insurance, income protection insurance, and total permanent disability insurance respectively). Fine in and of itself.

But what we’re not talking about are the uninsurable risks that are often much more likely to happen, and can have a bigger impact. 

If you’re employed there is a major risk of one day losing your job … and perhaps even losing your profession altogether. Our ideal risk management advisor would be helping us to future-proof our career, which could result in us directing some of our risk management spend to training and development. 

If you’re running your own business there’s a strong possibility that the business could go broke. In fact because of the probability of this occurring no insurance company would ever offer a policy for that. It’s much more likely that your business will go bankrupt this year than it is that you will die. So get life insurance by all means, but it's probably also worth investing in a business coach to help keep the business going too.  


And if you’re married, one of the biggest risks to your wealth that no insurance broker will talk about is getting divorced. You’re much more likely to end up in a divorce court than you are in a wheel chair. So as well as insurance, might also be worth investing in some marriage counseling … or even a bunch of flowers every once in a while.

So rather than thinking about insurance, think about risk. And make sure you’re thinking about managing your uninsurable risks too.