Why do people buy insurance? We do so for the purposes of financial security. Health insurance ensures that we can seek the necessary medical care whenever we need it without having to worry about the expenses. A pension plan ensures that we remain financially independent even when our working years are long gone.
A life insurance ensures that even in death we can provide for the monetary security of our loved ones. Once we have these and other financial safety nets in place, we put our money to other uses-e.g. donating to charity, setting out on a round-the-world trip, and so on.
The chronology may differ from person to person, of course-e.g. Mr. X may set aside a monthly charity allowance right from his first paycheque. Nevertheless, there is a tendency to get one's insurance in place first before sponsoring a school or buying a high-end home. In this regard, one cannot help thinking of Maslow's concept of the Hierarchy of Needs. Abraham Maslow, a psychologist, introduced this idea in his 1943 paper, A Theory of Human Motivation. The well- known theory lists human needs within a pyramidal structure to show how we prioritize certain basic needs before moving on to the next rung of needs.
The Structure of the Needs Pyramid
Starting from the base of the pyramid, the needs that motivate human behaviour, according to
Maslow, are as follows:
3. Belongingness and love
5. Self-actualization and self-transcendence
The physiological needs represent the most basic needs that determine our survival-e.g. food, water, sleep, warmth, etc. The safety needs come next and include shelter, healthcare, a steady income, etc. These also represent survival needs, but are not as necessary to survival as are the physiological needs. Safety is followed by belongingness and love (social needs), esteem (the need for self-worth and personal recognition), and self-actualization and self-transcendence (needs pertaining to personal growth and happiness).
As per Maslow, human beings are motivated to start at the base of the pyramid (physiological needs), fulfilling lower level needs before gradually making their way to the top of the pyramid.
The Hierarchy of Needs and Insurance
So how does Malsow's theory translate into the realm of personal finance, particularly insurance? As you probably have surmised already, insurance represents the safety needs which make up the second-lowest rung on the Maslow needs pyramid. As soon as man has fulfilled his basic survival needs by gathering enough food, finding shelter from the elements, and so on, he will start looking at the next level of needs-safety and security; in other words, insurance.
Thus, insurance is at the bottom of the needs pyramid. Once a person's bodily needs are met, he will start saving for a rainy day. In the old days, this would have meant storing small change in a piggy bank; today, it means buying life and health insurance products and planning for retirement. You may feel secure enough to keep pushing your insurance-buying plans aside, but as Maslow's famous pyramid suggests, that five-bedroom house (esteem) and world tour (self- actualization) can wait until after your have fulfilled your insurance needs. Avoiding insurance while you fulfil other non-survival needs is not your best option. Maslow would agree.
Written By: Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison
portal. For more articles by Deepak Yohannan, please visit MyInsuranceClub.com