According to Wikipedia insurance is a form of risk management primarily used to hedge against the risk of a contingent loss.
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. This can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss.
Insurance is as old as human society. Initially insurance was in the form of people helping each other. If for instance a house burned down, the neighbours would help to build one. Should a neighbour not be willing to help, he or she would not receive help in the future! In 1602 the United East-Indian Company (VOC in Dutch) was founded in the Netherlands, and Holland became an international trade centre. This encouraged the demand for marine insurance. (Although the first marine insurance contract known dates back from 1347 in Genoa). Towards the end of the seventeenth century in London (which had also become an important city for the marine trade) a certain Edward Lloyd opened a coffee house. This soon became a meeting place for parties wishing to insure their cargoes and ships and for those willing to underwrite those ventures. Today, Lloyd’s of London remains the leading market for all specialized types of insurance.
Home insurance as we know it today probably started after the Great Fire of London in 1666. Thousands of wooden houses were destroyed and in 1680 a Mr Nicholas Barbon opened an office to insure buildings. Today it is possible to get insurance against many other risks such as: break-in, theft, liability, illness, disability, unemployment, legal aid and even death.
At the moment, due to the financial crisis and the subsequent increase in unemployment figures, unemployment insurance is increasingly popular. Especially in combination with mortgages, and rightly so. If you lose your job, your income will drop and make your monthly mortgage payments or paying your rent more difficult. The same applies of course in the case of disability. In the Netherlands if you are employed, you will receive sick pay through your employer during the first two years. Although not necessarily 100%. But if after two years you are still unable to work due to your illness, the sick pay will stop and you will be transferred to another desk: the disability desk. How much disability pay you will receive depends on many circumstances, but you can be sure of one thing: it will not be anything like the salary you were used to. For these unfortunate and unforeseeable events of disability and unemployment, it is possible to get insurance.
Many expats already have such insurance, but equally, many expats have insurance that will never pay out! There is a large number of expats for instance, who decide to move back home in case of disability or unemployment. In the small print of their insurance policy it might say that the insurance will not pay out in case they leave the Netherlands. The small print may also read that one has to be declared disabled by the Dutch UWV. UWV is a semi-government organization in The Netherlands that is responsible for the execution of employee’s insurance, and if you work for a Dutch company, you are automatically insured.
However, if you have a tax free salary (for instance if you work for the United Nations or a related organisation), you are not insured through the UWV and therefore your private disability or unemployment insurance may not pay out! Imagine having paid a couple of thousand euro’s for an insurance that does not pay out…
The good news is that in many cases, financial consultants such as De Boer Financial Consultants, have succesfully negotiated (partial) refunds from insurance companies. Insurance can be extremely useful and will protect you against bankruptcy in case disaster strikes.It is strongly recommended that you consider the risks of unemployment and disability, especially when you are (or about to become) a home owner. But you have to know for sure that the conditions of these policies meet your personal circumstances and your special (expat) needs. For this you need to thoroughly read the small print ..… in Dutch! Or get some good advice, just to be sure.
Article by de Boer Financial Consultants. For financial advice when moving to the Netherlands, contact +31 (0)70 511 8788.