Blog

Insurance is a grudge purchase. We know we need it but – man – we resent the expense. With health insurance premiums going up next week it’s a good idea to take a look at the whole market.

Insurance is a grudge purchase. We know we need it but – man – we resent the expense, which typically represents a quarter or more of a family’s so-called fixed expenses.

Well, I love insurance – probably why I have friends in insurance. And (rather than you enduring our barbecues) here’s all the important stuff we talk about. Because if there’s one thing worse than spending big on insurance, it’s spending big on insurance that never pays out.

Tip 1. Don’t do it yourself

Insurers are now so good at pricing ‘risk’ that many policyholders end up paying in premiums exactly what they make in claims. Which might have you thinking about self-insuring – putting aside the premium-equivalent each month so you can cover the cost of a disaster yourself. Don’t. You run the risk that disaster will come early and you won’t yet have the cash. Having said that…

Tip 2. Don’t buy funeral or pet insurance

Instead, save the money into a high-interest account (or mortgage if you have one). Funeral insurance is likely to cost many, many times what you pay for it. Sure, funerals run from $4000 to $15,000 – as the incessant ads shout – but you’d need to die young to come out ahead! If you purchase the insurance at 65, my mates at RiceWarner Actuaries say you will, in effect, pay for four funerals if you don’t pop your clogs until 91, by which time the insurance is usually free (how generous).

Either hold off buying it for as long as possible, bearing in mind this will increase premiums, or opt for good-old-fashioned life insurance (more on that in a mo).

Pets are costly critters but the premium/pay-off ratio may not be worth it. This insurance also usually has annual claim limits and a list of exclusions you can’t jump over that, because the same company underwrites most products, are almost across the board. Most providers won’t cover pre-existing conditions and some don’t cover ongoing medical conditions either. Stash cash equal to the premiums from the outset – a pet piggy bank – and you could win.

Tip 3. If you’re rolling in money, buy critical illness or trauma cover

You’ll get a nice lump sum if you get diagnosed with one of the very specific listed illnesses or conditions. If not, skip the expense for two reasons.

  • 1) Many life insurance policies will pay out early if you are diagnosed with a terminal illness and total and permanent disability insurance, a good one to add to your life cover, pays a lump sum too and
  • 2) this insurance is like a weird bad-health lotto.

Tip 4. Stand-alone travel insurance is (mostly) becoming redundant

Free policies attached to credit cards are getting better and more prevalent. Just ensure you are covered for the country you’re visiting, you are covered for enough, and for what you are doing (i.e. skiing or sky-diving). Also find out the procedure and contacts for making a claim before you leave and have to contend with international access. And be aware the insurance may be void if you’re tipsy!

Tip 5. Beat premium rises – flex the excess

Health insurance premiums are going up 6.2 per cent on April 1 in what is the second biggest hike in a decade. This will w ork out to about $280 a family per year. But there are many ways to sidestep the slap, even with your own insurer. Start by ditching cover for unnecessary conditions. If your insurer allows you to drop pregnancy, birth, IVF, hip replacement etc, do so as appropriate as it could save you a fortune. An iSelect spokesman told me that an average family would save about $500 a year by simply “switchiing off” pregnancy-related cover. Similarly, check you’re using all possible extras (for example, can you claim the cost of kids’ swimming lessons?).

Then “flex your excess” (as it’s called in the biz) to slash more (avoid a nightly co-payment, which involves chipping in a little yourself for each night in hospital, so could get expensive). This has a big impact on premiums. Once you have the best deal, see if you can beat it, remembering not to compromise coverage. I love this independent, unbiased website for product searches: http://www.privatehealth.gov.au/dynamic/compare.aspx Remember, there are no waiting periods for cover for which you already qualify.

Tip 6. Flex the excess with the car, too

Again you can flex your excess and/or get one of probably a myriad better deals when it comes to car insurance (there are a heap of comparison sites, just make sure there are a decent number of insurers covered). But there’s also massive technological innovation here that could save you.

Have you seen the AAMI Safe Driver App ads? You compete against friends to see who is the best driver – and therefore lowest insurance risk. A good result if you’re an AAMI policyholder earns you free roadside assistance and if you’re not, lower premiums if you join.

A far more sophisticated version is offered by QBE’s Insurance Box, which plugs in under your car’s dashboard and records all behavioural diagnostics. If you “plug in”, you automatically qualify for a premium discount. Perhaps avoid these products if you’re a bad driver! Here’s a little-known fine-print nasty too: Your insurer can often deny a claim because tyres are at the wrong pressure. Check today and regularly.

Tip 7. If you live on a corner your home and contents insurance will be more expensive?

There is greater opportunity to rob you (sorry). Rather than moving houses, moving providers carries big benefits for this insurance in particular – again, try a comparison site. But be careful. You want the same coverage for less cost, not a sub-standard policy that won’t, for instance, pay out for flood if you’re likely to need this. Also check and double check whether you would be completely covered for a rebuild (and rehouse in the interim); the magic words are “total replacement” value. More than 80 per cent of homeowners don’t have enough house insurance to resume the same standard of living after a disaster, says understandinsurance.com.au.

Insurers are now obliged to provide you with a quick-glance fact sheet to make comparisons easy. And, armed with a bit of competitor knowledge, an existing, quality insurer might price match. Also try the extra trick of finding a provider’s sum insured ‘sweet’ spot.

Home and contents products in particular have tipping points, if you like, where premiums ratchet up. For example, get quotes for $249,999 and $250,000 to see if $1 sum insured difference equates to hundreds of premium dollars difference. (Same applies to $499,999 and $500,000, and $999,999 and $1m).Yes, you can also flex your excess to cut costs further.

One final word on contents insurance: make sure it includes personal liability outside the home: for example, if you caused an accident on the golf course. This could otherwise bankrupt you.

Tip 8. Life insurance is cheap for what it is

And it’s refreshingly uncomplicated, too. What matters most is that you have enough. You want sufficient to pay out your debts – don’t forget any – and perhaps cover your dependents’ living expenses for a time (your partner may have to stay at home to look after the kids and would therefore receive no income). Remember, you will have a bit of life insurance through your super fund and this is a cheap way to get it BUT it will erode your contributions.

Tip 9. Income protection insurance? This is a “must buy”

It replaces 75 per cent of your income up to age 65 if accident or illness leaves you unable to work. You need it if you’re married or single (who would pay the bills?). And, unless you have lots of liquid assets (ones you can get at quickly), whether or not you have debts. But it’s expensive and I also like what are called level (rather than stepped) premiums. You pay more in the beginning so your premiums won’t forge ever skywards as you age and become a higher claim risk; you ultimately pay loads less. However, you have to be confident both that you will keep the insurance and that your insurer will keep trading, to come out ahead.

A word of warning on income protection in super: the definitions that trigger your insurer to pay out may not convince your super trustees that you deserve this payout, so it can become trapped in your super fund.

Avoid the problem by buying outside of super where at least you’ll qualify for tax deductions.

And I recommend a Holy Sh*t fund with six months’ salary in it (you have one, right?) that allows you to wait this long for payments to commence and cut premiums as a result.

Tip 10. Check one policy does not interfere with another

The biggest culprits are income protection and total and permanent disability. Rival insurers would love nothing more than to stall your claim for years in courts as they argue about who is liable. They’ll have no qualms about accepting duplicate premiums in the meantime, though.

And whatever you do, tell your insurer if you so much as go to the doctor for a cold between application and approval for any type of health or risk cover. Otherwise they might use this to allege a pre-existing condition and deny a claim.

You need insurance that pays out when you need. Don’t go for cheap, go for value.


Posted by Nicole Pedersen-McKinnon – The Age on 24th March, 2015