The “Stuff” Paradox: Why You Insure Your Car but Not Yourself

Most people in New Zealand insure the things they touch every day, because the risk feels obvious, the process feels familiar, and the loss feels easy to picture when it happens.
That habit makes sense right up until you ask a sharper question: what funds every bill behind that stuff, and what happens if that funding stops for longer than a few weeks.

Recent FSC research highlights the gap in a way that feels almost backwards, because 75% of people report having car insurance while only 34% report having life insurance, and only 12% report having income protection.
So we protect the vehicle that gets us to work far more often than we protect the income that work produces, even though the income pays for the vehicle, the mortgage, the food shop, and the whole household structure.

A normal Tuesday is the simplest way to see the real risk.
Imagine you wake up with a health issue that wipes out your ability to work for twelve weeks, or you pick up an injury that forces you into reduced hours while you recover, and then look at what still leaves your account each week like nothing changed.
Your car insurance does not pay the mortgage, your contents insurance does not buy groceries, and your phone cover does not keep the lights on, because those products protect objects, not cashflow.

This is where the “stuff” paradox turns into a financial plan problem, because the most valuable asset for most households is not the house or the car, it is the ability to earn income over many years.
If you rely on that income to service debt, support kids, or keep a partner at home, then even a short interruption creates pressure that pushes you toward bad decisions like running up high-interest debt, raiding savings too early, or selling assets at the wrong time.

Many people assume ACC fills the gap, and ACC does help in the right circumstances, but ACC does not cover illness and age-related conditions because ACC requires an accident-related injury.
Even when ACC applies, weekly compensation sits at up to 80% of earnings before tax and deductions, which often still leaves a real shortfall once you account for tax, KiwiSaver, child support, and fixed household costs that do not shrink just because your income did.

That shortfall is the protection gap, and it shows up in day-to-day life as stress, rushed financial decisions, and families trying to hold everything together while the income line stays uncertain.
It also shows up at a national level whenever people underestimate risk and underinsure, which Treasury illustrated in a different context when it estimated underinsurance across New Zealand homes at up to $184 billion under one set of assumptions, largely driven by people setting sums insured below true rebuild costs.
That figure relates to housing, not life cover, but the lesson transfers cleanly: when people guess instead of plan, the gap scales fast and the consequences land hardest on households that already run tight.

So why do smart people keep doing this, even when the logic feels obvious once you say it out loud.
People insure stuff because the outcome is immediate and visible, because the claim stories circulate widely, and because the purchase feels like a simple transaction rather than a confronting conversation about health, death, or long-term risk.
People also feel premium pressure every month, and cost of living stress pushes long-term protection down the list, even though the long-term risk never moved.

If you want a practical way to turn this into a decision, start by writing down what your household costs each month and how many months of that cost you hold in cash that you could access without selling investments or assets.
Then ask what happens if income drops for three months because of illness, what happens if income drops for twelve months because of injury, and what happens if one income disappears permanently, because those three scenarios stress test the plan in three very different ways.

From there, focus on outcomes rather than product names, because the point is not to “buy insurance,” the point is to protect your household’s ability to keep making good choices under pressure.
Life cover usually targets debt and dependants if you die, income protection usually targets cashflow when you cannot work, and serious illness cover often targets the lump-sum costs and disruption that follow a major diagnosis, with the right mix depending on your debts, dependants, savings, and risk tolerance.

At Invicta Financial, we run a short protection gap check that starts with your real household numbers, then maps a simple structure that fits your budget while still protecting the outcomes that matter most to your family.
If you want that check, book a free 15-minute call with Invicta Financial on 0800 468 282.

This article provides general information only and does not consider your personal circumstances.

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