Income protection | Bolster Risk Management - Simplifying financial risk, insurance and investments for you.

Income Protection Made Easy

Dom Bish — Wed, 23 Mar 2022 04:31:10 +0000

https://bolsterriskmanagement.com/

Income Protection Made Easy

I was going to call this article “IP for Dummies”, but figured there might be some trademark issues. It is not something we often think about, but what would you do if you became sick and were unable to work? You may have heard about Income Protection (or ‘IP’) already. You may know that if you are sick and cannot work, this insurance will pay you out each month. This sounds great, but you may have also heard that it is too expensive, not worth it, or is just too boring and hard to understand. As a result, you do nothing.

However, what if the worst does happen? What plan do you have in place to protect you, your family and all the things you have worked so hard for? Don’t let a lack of understanding about Income Protection stop you from taking steps to protect all that is important to you. Read on to find out more.

Key Ideas:

What is IP (and what it is not)?
When would you need it?
How is the cost figured out?
What is Agreed Value, Indemnity and LOE all about anyway..?
Pricing examples

What is IP (and what it is not)?

Your ability to earn is often your biggest asset. Being suddenly disabled or suffering an illness or injury can prevent you from working for an extended amount of time. This can dramatically impact your life, especially if you have family to take care of and financial commitments.

Income Protection insurance is there to provide you with a monthly payment while you are not receiving your salary or wage. This means that you can continue to pay your ongoing financial commitments such as mortgage/rent and your day to day living expenses. This gives you peace of mind so that you can focus on recovering and getting back to work.

Depending on your income protection policy, you can receive up to 75% of your pre-disability income. A number of the insurance providers also offer rehabilitation and support benefits with the aim of assisting you with returning to work, or improving your capacity to work.

It is important to note that Income Protection will not pay out if another source of income is paying, such as ACC which is the most common one. If you have an accident, ACC will pay you up to 80% of your declarable earnings. This is easy for an employee to figure out but can cause problems for those self-employed. The caveat here is that IP can be used to ‘top-up’ your cover where ACC isn’t paying you. This might be because you are using ACC’s ‘agreed value’ product (CoverPlus Extra), or your income exceeds the maximum benefit amount under the ACC policy.

If you are self-employed you may want to look at ACC CoverPlus Extra (here) this allows you to have an ‘agreed value’ policy with them. This can mean you have certainty should you need to claim. It also takes some of the guesswork out of ACC benefits, which can be a bit of a minefield. Talk with your adviser to find out how to save on your ACC, while increasing the cover that you can have. Many times, you can pay less, but have more cover.

There is often the misconception that Income Protection is there to cover you if you ‘lose your job’, this is not the case. This type of cover will not help you if the company goes bust and leaves you without work. This cover will not help you if you take voluntary redundancy. As with all personal insurance, it is around your physical and mental health. If you have a condition or injury that means you cannot work, you have the option to make a claim. It is there to cover a portion of your income and to plug-the-gap until you can get back on your feet again,

When would you need it?

Many people may manage for a few weeks with a combination of sick and annual leave if they get sick. What happens when this runs out and you are unable to work for months or even years?

Here are some common reasons for having an income protection policy:

Here are some other stats to consider from Asteron:

More than 8-in-10 of Asteron Life claims were made by men
The youngest person to claim was just 23 years old
7 out of 10 of people who claimed on their Asteron Life Income Protection were aged between 36-55 years old

We all know that these things can happen to anyone. How financially prepared would you be if one of these things happened to you? Would it be good to have Income Protection Cover to ease the burden, by paying you a monthly benefit for the period of cover or until you are able to work again?

“Having income protection has been a godsend. If we didn’t have it, we would have had to sell our house in order to have something to live on, and go rent somewhere. Everything would have been so different.” Pam, Asteron Life customer

How is the cost figured out?

The amount you will pay for Income Protection depends on a number of things including your age and occupation. The more risky your occupation, the higher the premium can be. That said, here are 3 key components to how Income Protection premiums are priced:

Monthly amount sum insured (normally up to 75% of your gross income)
How long the insurance company will pay you for – this is normally 2 years, 5 years or through to Age 65 (and beyond in some cases)
How soon the insurance company will start paying you. This is called the waiting period and is normally 4, 8, 13, 26, 52 weeks.

Once you know which insurance option is right for you, you then choose the time you will wait before you start receiving payments and how long you want to receive them for. For example you can choose the wait period for your first payment to be as soon as 4 weeks and for payments to last for 2 years, 5 years or until age 65 or even to age 70.

In some cases a 1 or 2 year wait period might suit you best. It all depends on how well you’d cope financially before the payments kick in.

Things to keep in mind, which impacts the cost to you in terms of higher premiums are:

The longer the insurance company pays you out (i.e. through to Age 65)
The shorter the waiting time for your payment (i.e. 4 weeks)

Many providers offer optional ‘extras’ that you can have, but you’ll pay more for these, these could include:

Death benefit
Total & partial disability
Special injury / Specific illness condition
Claims escalation
Mental health exclusion (you will pay less but will not be covered for any mental health condition resulting in you taking time off work).
Redundancy (this only pays for 6 months, and voluntary redundancy is not a valid reason to claim)

In terms of premiums (payments), you can choose to go with a yearly renewable premium that is fixed for a year at a time and increases as you age or you can choose a fixed-price premium for the life of your policy. This type of pricing plan is often known as ‘levelled premium’. It can be a great way to save on the cost of the policy over time.

Everyone’s circumstances are different and your adviser can recommend the best cover for your situation.

[Advertisement]

For all your Real Estate needs, use the team that gets results. With a combined 51 years in the NZ Police, you get the ability to speak to people, negotiate and the attention to detail required to optimise your property’s potential.

Raelene and Colin McMurtrie.

027 641 2863

Barfoot and Thompson Browns Bay REAA 2008

What is Agreed Value, Indemnity and LOE all about anyway..?

Income Protection policies can come in different shapes and sizes. However, some common variations are as follows:

Agreed Value

Benefit payments are based on a proportion of your income agreed at the time you take out your cover, this is calculated on your gross income. If you are self-employed your gross income is averaged over the last two to three years. This approach allows certainty about how much your monthly claim payments will be.

Indemnity Value

Your benefit payments are based on a proportion of your income at claim time, before you suffered the illness or injury. Up to 75% of your gross annual income can be insured if you select this benefit. This type of cover is often more cost-efficient, though there can be downsides if your income fluctuates. In most cases, the premium cost of this can also be an annual tax deduction (check with your accountant).

Loss of Earnings Cover (LOE)

This option allows you to choose at claim time how your benefit payments are calculated. Based on either an agreed value or indemnity, whichever is higher. This is helpful if your income fluctuates, for example as a contractor or if you’re self-employed. Often, this type of policy will be the most expensive.

Pricing examples

Here are some examples of pricing, based on a number of different factors.

The examples I am using are as follows: An Occupation Class 2 (e.g. office worker), non-smoker with an average gross income of $60,000 per annum. With insurance up to 75% of their gross annual income, they would get a monthly payout of approximately $3,750.

Based on this situation the tables below provide two examples across 3 age bands; 25, 35, 45. I have used fortnightly payments under two different scenarios. All prices are indicative only, based on figures provided from 5 of the top providers in New Zealand.

Example 1 – 4 weeks wait for 2 years benefit- prices per fortnight

	Age 25	Age 35	Age 45
Female	$25.58	$34.44	$54.66
Male	$19.01	$22.35	$34.40

Example 2 – 13 weeks wait through to Age 65 – prices per fortnight

	Age 25	Age 35	Age 45
Female	$27.37	$34.40	$63.10
Male	$20.60	$22.26	$38.45

[Does not include waiver of premium costs or policy fee, which are likely to be added to any policy taken.]

As you can see from these tables, women are deemed to be a higher risk earlier in their lives, certainly around their late thirties to late forties. The actuarial data shows that women will have a higher claims rate during this time.

Men have an easier time until they hit mid-to-late forties, then unfortunately, it is all downhill from there. While the men are struggling in their later years, women will generally have less claimable events and survive past their male counterparts.

Please Note: all of this information is illustrative only, please consult your financial adviser for a personalised quote for your situation and stage in life.

Income protection is a great product, but it can be hard to grapple with as there are many variables that need to be considered based on your requirements. Add to that, all of the industry jargon to understand, and it can be easier to see why some people feel it is all just too hard. Less than one in five eligible people in New Zealand have this type of financial protection in place. By not having it, the financial ramifications for people who have a sickness or injury, can be huge.

Essentially, Income Protection is providing you with the assurance that should anything happen to you, you will get some financial stability from your insurance to help you get through. The tricky part is getting the right cover and keeping the cost within your budget. This is why having a good adviser is really important, as they will tailor your Income Protection to your needs and circumstances.

[My Disclosure statement can be found here]

#FinancialWellness

#EmployeeWellness

#MoneyWorkshops

#YourMoneyMatters

#SortYourDosh

#HealthAndWellness

#MoneyWorries

#FinancialWellbeing

#GetAdvice

#EmployeeBenefits

#GroupCover

#DominicBish

Dominic started Bolster Risk Management to help people along their personal finance journey.

He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.

Underpinning this is a philosophy that says Your Money Matters.

The post Income Protection Made Easy first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

9 Things You Should Know: Mortgage Repayment Cover

Dom Bish — Sun, 17 Oct 2021 03:17:15 +0000

https://bolsterriskmanagement.com/

Mortgage protection: What is it? Why should you have it?

You have a mortgage; finances are tight because you have stretched yourself so much just to get a foot on the housing ladder. Then you get sick and cannot work for the next 2 years. What happens to your mortgage? Is your new home now at risk of being taken away?

You are renting; You’ve tried the property ladder, but right now it is out of reach. Your family relies on your income to keep paying the rent. Then you have an accident and cannot work for the next 5 years while you rehabilitate. What happens to your family’s home? Is it now at risk of being taken away?

These two examples are basic, but they help to illustrate the majority of reasons why people get this type of personal insurance. Below is a list of nine things you should know before you talk with your financial adviser.

The purpose of disability products
Home mortgage – not investment
“I don’t have a mortgage” (then, use your income)
“Offsets’’ not applied
4 core cost components
Add-ons and additional benefits
Premium type: YRT / Level
Partial Payment Benefits
Common Claims

1. The purpose of disability products

Mortgage protection insurance, is in a suite of products that you might hear referred to as income replacement, or disability insurance products. They will pay the benefit to the effected person on a monthly basis, until that person goes back to work, or the benefit period ends.

Generally, it is “Agreed Value”. This means that the amount insured, also known as the ‘benefit amount’, is agreed at the time of application. There are other income protection products that will determine the benefit amount at claim time.

If you are unable to work due to injury or illness, the benefit will start paying you, after the “waiting period”.

Typically, people may have a mix of both mortgage repayment insurance and income protection. This is because both works slightly differently, although they compliment each other very well.

2. Home mortgage – not investment

You can insure up to 115% of home mortgage repayments. Why 115%? Interest rates can fluctuate – so this amount gives you a buffer. Not all insurers will go to 115%, but most will do 110%-115%. However, they will require proof, like a bank statement.

The insurance can only be on your home mortgage, not on your investment property. Your tenants will continue to pay you rent, even if you have the accident. Therefore, with this product, you are not protecting that financial risk.

3. “I don’t have a mortgage” (then, use up to 45% of income)

Many providers will allow you to use 40-45% of your gross income, instead. Not everyone has a mortgage. This means that you can use the benefit, should you need to, towards paying your rent. You will need to provide the insurer proof of your income.

Check out our podcasts.

There are over 40 to listen to, and most are less than 10 minutes.

4. “Offsets’’ not applied

Unlike many income protection products, mortgage repayment benefits will not be ‘offset’ by other income sources. This means that you can still receive your mortgage repayment insurance (MRI) and the other income.

In New Zealand, many people think of ACC is this context. If you have an injury, you may get some ACC assistance, and, the benefit paid by your insurer.

This type of cover is not normally classed as taxable income. Again, unlike many income protection products, which are taxed as income, typically, MRI isn’t.

5. 4 core cost components

As with the other products in the income replacement suite, there are four main points of price:

The amount you are insuring
The waiting period – the longer the wait, the cheaper the premium
The benefit term – the shorter the benefit is paid, the cheaper the premium
Occupation Class

The waiting periods from most providers are 4 weeks, 8, 13, 26 and 52 weeks. For example, you might choose a longer waiting period if you have some income protection already in place. It depends on the risk protection strategy that you are working on with your financial adviser.

The benefit periods are typically 2 years, 5 years and through to age 65. Some insurance companies will go beyond age 65, which is becoming more relevant as people are working longer than the historical retirement age.

The type of occupation that you do will also determine the price. Some jobs are just riskier than others. Unfortunately, some roles are not covered at all. Each provider has their own definitions and criteria.

6. Add-ons and additional benefits

Another seven articles could be written on this point alone! There is a lot of variety among the insurance providers in the add-ons and ‘extras’ that they offer. They all try to find their own niche in the market, and this is one area that they can deviate from the competition.

Effectively, the insurance firms offer product enhancements, of which some are built-in, the others are optional (paid) extras.

You might come across things like:

Funeral (or bereavement) benefit
Permanent disability benefit
Recurrent disablement
Rehabilitation and support
Childcare support benefit
Mental health discounts
Inflation protection

The range is wide and list is long.

7. Premium type: YRT / Level

As with many personal insurance products, you can elect two ways to pay.

The first is yearly renewable term (YRT). This is effectively saying that your contract is yearly, with the price re-setting each year. It will increase, because you get older, there will be inflation, and the cost of the product will change.

The second option is ‘levelled’ premiums. Here the contract is over ten or more years and you pay the same amount each year. However, yes, you have price certainty but the premium in the early years is higher than you would pay on YRT. The upside though can be significant. As you progress through your contract, the amount you pay will seem less and less compared to the YRT premium. In many cases you could potentially save thousands of dollars over the life of the policy.

Level vs YRT = price certainty & high long-term savings vs lower initial cost and a potentially costly product over time.

8. Partial Payment Benefits

Many insurers will offer partial payment benefits. This might be for a specific injury or a listed critical illness. It does depend on the provider, and you will need to be aware of the fine print.

Often these benefits will be paid in addition to the monthly-paying benefit that you receive.

For example, a fractured wrist may not mean that you need two years off work, but it will cause you some financial difficulties if you are a tradie or a surgeon. The specific injury benefit might be handy here.

9. Common Claims

The different companies have slightly varying statistics on their claims. However, for the disability products like mortgage and income protection, the top claims are as follows:

Muscular and joints (including back issues and accidents)
Cancer
Mental illness/ workplace stress
Neurological conditions and stroke

Asteron Life, who is one of the major providers has it illustrated as this

While it may appear that mortgage repayment insurance is a minefield with different options, much of what I’ve discussed is quite straight forward. In saying that, choosing a financial adviser to walk you through the product is a smart move. Let the professional help you navigate the right options that suit you and your situation.

The post 9 Things You Should Know: Mortgage Repayment Cover first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

What is the Cost of Personal Insurance?

Dom Bish — Thu, 14 Oct 2021 03:54:33 +0000

https://bolsterriskmanagement.com/

17 Things You Need to Know

Personal Insurance – where are the costs?

There are many things that make up the cost of insurance, depending on what you are getting covered for. It is not like buying a can of baked beans. Clearly. That said, we don’t think it is some sort of ‘black- art’ that needs to be kept secret from the public, either. At the end of this article you should have a much clearer understanding of the terminology and jargon used, as well as an understanding of the building blocks for your premium There are about as many types of insurance as there are brands of beans, so we’re going to focus, in this article, on what we call “personal risk”.

The 5 key product categories are:

OK, you could argue that this is not the most inspiring line-up for a discussion! But it’s critical that you know what these things are, how they’re priced, and how being covered for any or all of them can make a significant difference to your life.

Pricing Considerations

Below is the list. It’s a snapshot that captures the most commonly considered factors when companies are pricing your insurance:

1. Your age

2. If you smoke

3. Your gender

4. Your BMI (Body Mass Index)

5. Other health issues/pre-existing conditions (these impact loading)

6. Level / YRT (Yearly Renewable Term)

7. Disability Insurance (or DI cover)

- Monthly benefit amount
- Wait Period
- Benefit Term

8. Health

- Excess Options
- Hospital vs day-to-day cover?

9. Trauma

- Life Buyback
- Reinstatement

10. Accelerated vs Stand Alone

11. Total & Permanent Disability (TPD)

Own vs Any occupation

12. Occupation Class

13. CPI – Consumer Price Index

14. Insurer’s product cost

15. Multi-benefit, multi-product discounts

16. Kids trauma – Free or not..?

17. Future Insurability – what is it?

We will go expand on these bullet points below.

We have a range of tools to help you

It can be hard to figure out how much cover to get.

This simple tool is a step in the right direction. It won’t have all the answers, but you’ll have a much greater understanding of what you should be thinking about.

Some of these pricing building blocks may apply to all insurance products, some will be specific to the product category.

For example, the reinstatement option for Trauma applies to Trauma and not health insurance.

Note: This information is not meant the take the place of a policy document. Also, each insurer may use slightly different terminology. And remember, life insurance discussions inevitably involve facts and stats that some of would prefer not to face. Don’t be put off by our directness here: this is important (It’s your life, after all!) and it’s our job to be clear, direct, and factual. And with all that said, let’s move on: we think this information we’ve gathered up and clarified will really help you when you discuss your protection plans with your financial adviser. And that’s some really good news.

1). Age

Age is a key factor in price. Statistically, as we get older, more wears out and goes wrong. You’re more likely to have heart issues in your 50s than your 20s. And the longer you stick around, so do you increase your chances of having an accident. It’s just statistics, and it’s not worth arguing with! But it impacts your premium costs.

2). Smoker

The health risks to smokers are well known. Smoking drastically shortens your life expectancy and increases your chance of getting a whole raft of health conditions. As these risks increase, the insurance companies want to ‘off-set’ their risk, by charging you a higher rate (or premium) for being a smoker. Interestingly, and worth being aware of, some insurers have adopted a similar view to vaping too.

3). Gender

Men and women are biologically different. (Who knew?!). The point is these differences mean that statistically, different conditions are likely to impact women, and at different times in their lives, than for men. Generally, the pricing on women tends to be higher when they’re younger, and then lower than men in later years.

4). BMI – Body Mass Index

Essentially, this is the ratio between your height and weight. Although it is a far from perfect measure, (a weightlifter, for example, is both large and fit), people with
higher BMI scores are statistically more likely to have issues with diabetes and cardiovascular conditions, and the insurers price accordingly.

5). Loading – Other Health Issues & Pre-existing Conditions

Pricing insurance is definitely not black and white, especially around health. People carry myriad conditions throughout their lives, and these often come and go. An insurer, then, will assess a condition you may have as “borderline” and rather than exclude you on that basis, they will ‘load’ your premium to account for this. This minimizes their risk. Remember, these things can be re-evaluated within a set time period, and loadings can be removed when conditions clear or are managed to a degree the insurers are happy with. And if your condition is ongoing, you’re simply paying a little more to accommodate that.

6). Level / YRT (Yearly Renewable Term)

Most premiums nowadays are set out as YRT, which effectively means that the contract ‘renews’ each year. (Anyone with insurance is familiar with getting their renewal letter in the mail telling about their premium increase.) Even though you may be paying fortnightly or monthly, the agreement you have in place with the insurer is an annual one.

There is another process that is growing in popularity which is known as the Level Premium. An easy way to think of it is like fixing your mortgage repayments (whereby you can request with you bank to pay the same amount each fortnight on your mortgage, irrespective of interest rates changes, for a set period. The Level Premium option works on a similar basis. You can fix the amount you pay for a specified term, usually through to the age of 65 or 70, although some insurers restrict the term to ten years.

As with fixing your mortgage, there are significant cost-savings to the Level Premium process, but there are fishhooks too. Definitely one to talk through with your adviser.

7.1). Disability Insurance (or DI cover) – Monthly Benefit Amount

The amount of cover that you specify is a key factor in your price. This applies for all insurances (except Health and medical, which behave differently), and it’s pretty simple: the more you insure yourself for, the higher the premium.

7.2). Disability Insurance (or DI cover) – Wait Period

A key component of DI cover is how soon you will start receiving payments post our event, known as the “wait” period. Most will start at 4 weeks, but there are typically options like 8/13/26 weeks (and beyond). Essentially, the longer the wait time before you get any payout, the lower the cost to you.

7.3). Disability Insurance (or DI cover) – Benefit Term

The benefit term is how long the insurer will carry on paying you a monthly disability benefit. Generally, the options are 2, 5 years or more, right through to the age of 65.

The longer the term, the more expensive the insurance. It makes sense, really: if the insurance company has to pay you monthly for the next 30 years of your working life, because you have chosen the Age 65 option, this will cost you far more, than if you’d chosen the 2-year option.

Body Mass Index is a simple tool that helps insurance providers.

The index helps the insurance underwriters to assess the ‘risk’ that you might pose them as a policy holder.

A very high (or low) index, may mean that there are underlying health conditions.

Check out the calculator for yourself.

8.1). Health – Excess Options

This is where you get some power back! Your excess gives you some future control over your health insurance. It works much the same way as an excess on home/car insurance may have an excess, you can do the same with most modern health covers.

8.2). Health – Hospital or Day-to-day Cover?

We’re getting spoiled for choice now! The type of cover that you have with health
insurance plays a large part how the price is calculated. Generally, day-to-day cover,
such as seeing your GP, prescriptions, or dental & eyewear are in many cases what we call “dollar-swapping”, i.e. paying via premium what you’d spend anyway. Or, to
be a little more direct, it’s like insuring the wingmirror on your car and not the chassis and engine.
Insurance is about covering the risk you cannot ordinarily cover yourself. Most people cannot afford the $20,000 cancer operation, so they’ll buy insurance to cover that. Buying insurance to cover yourself for a $60 trip to the doctor doesn’t make much financial sense.

9.1). Trauma – Life Buy Back

When Trauma cover is accelerated (see the article “What is accelerated… does it go faster?”), you can elect to have the Life Insurance component ‘brought back’ to the sum insured, prior to the trauma claim.

9.2). Trauma – Reinstatement

This is an option whereby after a trauma claim, you can elect to have the Trauma cover reinstated, to have cover again, should you need it in the future. While this is a great option, there are a number of fishhooks with it. Again, speak with your financial adviser to get a good understanding of the limitations with this option.

10.). Accelerated versus Stand Alone

You can have your trauma (or TPD) cover ‘accelerated’ to your life cover (see the blog post on our website, “What is accelerated… does it go faster?”) Essentially
this means that if you make a claim on your trauma, then your Life insured amount
decreases by that amount. The risk then, is that you have less in your life cover should you need it.
Accelerated is an economic method of stacking your insurance to cover your risks while on a budget. Again, oner a conversation with your financial adviser.

11). Total & Permanent Disability (TPD): Own vs Any Occupation

There basically two types of TPD cover. TPD pays a lump sum if you are unable to work. You can opt for this to be applied specifically to in your own occupation, or occupations in general. The second option will be less expensive, but depending on what you do, you may need to opt for the first. There is obviously an assumption here about just how severe your condition is. For you, to be unable to work in any job
whatsoever is obviously a tougher situation than being unfit for your own specific
skillset. Yet from the insurer’s perspective, the “any occupation” option is a lesser
risk. It’s a bit, as they say, complicated!
(See the blog post on our website “TPD – Is that contagious.. ?” for more info this).

Small bite-sized chunks makes all the difference. You improve your financial position by being boring – yup I just said that.

Be boring.

Save a small amount on a regular basis.

See what happens if you put just a small amount away for 5 years at 5% compounding interest.

Not sure what compounding means? That’s fine – interest on interest on interest on…

12). Occupation Class

The type of job you do may expose you to greater risks than other lines of work.
Therefore, especially with monthly-paying disability covers, different jobs will attract different rates. You may assume that an arc-welder will be more expensive to insure than a high-level corporate. You may be right; the welder faces dangerous conditions on a daily basis. That said, a CEO will also face higher risks for stress and mental illness days and will therefore attract expense that way.

13). CPI – Consumer Price Index

Also known as inflation, this has the same effect on insurance as it does with other goods and services; they track upwards over time.

14). Underlying Cost Of The Insurer’s Product

Insurers spend a lot of time making sure that they can sustain their ‘book’, which
consists of the clients that make up all the policies that the insurance company looks after. Claims data and ‘pooled product risk’ – the number of claims on a certain product – all contribute to future costs. The more claims, the more financial strain on the ‘book’. In order to keep the book viable for everyone in it, the insurer will review their pricing regularly, adjusting their prices to you, the client, accordingly.

15). Multi-benefit discounts, Multi-product Discounts

It’s a competitive market, so most firms now offer some type of bundled discounts.
They may call it different things, and structure it all slightly differently, but essentially, it’s around customer loyalty: the more you stack with them, the lower your price per product. Some of these discounts can be significant, especially when
you are getting close to or beyond 10-12% discounts on an annual premium.

16). Kids trauma – free of not..?

The are several top-tier insurers who will offer some form of free trauma cover for children, as long as the parents have a certain amount of trauma cover. On top of this, some companies will allow you to purchase additional trauma cover for children.

17). Future Insurability – what is it?

This is another option that can be available with some life insurance policies. Again, the names might be different depending on which firm you deal with, but it effectively offers your a chance to increase your sum insured without needing to be underwritten for the increase. Meaning? Usually, is you want to increase your risk with the insurance company, they want to ask you a load of questions again, to underwrite you.

This Future Insurability Option allows you to increase your cover without needing to answer quite so comprehensively about your changed health situation. Obviously, there are conditions that apply, specific to each provider, but it simplifies things for you. And that, let’s not forget, is what we’re here to deliver! Simplification, and clarification.

Final thoughts

These are the 17 things that most influence price in personal insurance. This is by no means an exhaustive list but it should have given you valuable information about the price for insurance and, most importantly, how the different choices you make will affect your final price.

As you can see, there are many variables, depending on your needs, what you want, and how you want your risk protection plan to work. Remember, no one knows what is going to happen in the future. We are simply trying to find the right financial protection if that unexpected event happens to you.

Feel free to speak with us, or your financial adviser, about any of the points we discussed above. The ultimate objective is that you can get the right protection that you need for you and your family, at a price that is right for you.

The post What is the Cost of Personal Insurance? first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

6 secrets you need to know before you get disability insurance

Dom Bish — Fri, 09 Jul 2021 05:49:15 +0000

https://bolsterriskmanagement.com/

6 SECRETS YOU NEED TO KNOW BEFORE YOU GET DISABILITY INSURANCE

Personal insurance can be a minefield.

84% of people don’t have monthly-paying disability cover in New Zealand.
81% don’t have critical illness cover.

If you were unable to work due to accident or illness, how would you household survive financially?

Do you understand why you should have disability insurance?

In my experience, most people know they should have this cover. But most people do not want to think about worst-case scenarios. Most people will actively avoid thinking about worst-case situations.

I get it. I understand. But…

Sticking your head in the sand won’t help you when the proverbial smacks your butt.

I called them “6 secrets…” to get your attention. Now I’ve done that, let’s get to it. Yes, personal insurance can be a minefield. But having professional and personalised advice will make the process easier. This not personalised advice by-the-way. I don’t know you. But I will outline some simple concepts so that when you speak with your adviser, you can have a robust chat about things that are relent to you. Ready?

1). What is the financial risk that you are insuring for?

Seems simple enough, we can think of the worst possible circumstance and then put something in place to minimise the financial damage. However, sometimes things are not that bad. So, do you need to the gold-plated, deluxe all-you-can-eat platter? Or is there a mid-point that is kinder to your bank balance?

The key thing with this type of protection is, you are managing the risk that you lose your income, either partially, temporarily or permanently. The following three points all link off this one…

2). Permanent & total disability or temporary disablement
One pays you a lump sum, the other pays you monthly for a nominated amount of time (2 years through age 65 and beyond). Both serve a purpose. Both come at different costs. Check out my article here about keeping the costs down on monthly paying benefits.

Statistically, we know that the majority of people will be back to work after accident and illness within 18-24 months. However, do you want to take the risk that you might be one of those rarer cases who are permanently disabled?

This is not an either-or situation. You can have both and structure your cover to still maximise your protection while being kind to your monthly expenses.

3). How much income is to be replaced…?

With the monthly paying benefits, the maximum amount you can protect is 75% of your gross earnings. There are conditions and caveats that I will not go into here. That said, if you are accustomed to living with a certain level of income, what would happen if you even lost 25% of it? Could that hurt your family. Now imagine that you don’t even have the basic cover in place. How do you replace 100% of your income?

With TPD, or what we know as permanent disability, the target amount is harder to gauge. For some, they will calculate how many years of potential working life they have, multiply that by their annual income, and that will be the amount. For others, they will just use their income multiplied by a few years, added to a debt repayment amount. This clears their debt and gives them a buffer a few years. You can obviously do less or more as your situation, budget and risk protection goals allow.

4). Short-term or through to retirement (what is the replacement value in years…?)

Similar to the point above, are you looking to replace your income for a couple of years or much longer?

Remember the longer you insure for and the larger the benefit (the amount you get paid), the higher your monthly premium. If you want that gold-plated all-you-can-eat platter, then you will need to pay for it.

In my experience, many people want the best, but will settle for what they can comfortably afford if it matches their key goals.

The challenge for you, is to determine what your key risk protection goals are. This is where an experienced and professional insurance adviser will help you.

5) Don’t forget the home executive – who looks after the kids and runs the house?

Many times I see families where the main income earner is thinking about themselves and their ‘financial contribution’. This is great and a good way to start the analysis process. However, family units have contributors in others ways. Looking after the home and children, while not producing an income, is still a vital activity and central to the family nucleus.

What happens if that person is incapacitated? Who looks after the kids and the house then? The income earner? But then where does the income come from…?

While we tend to focus on pure financial risk management, having a broader perspective on the family can be just as worthy. Financial risk can impact from different sources. At least think these risks through and discuss with your significant other. Create a plan that suits the family and not just one person.

6). You don’t have to get it perfect first time.

Insurance is a moving target. Life changes, stuff happens, circumstances will force you to make different choices. What is relevant to you today will not be the same in 5, 10 or 15 years’ time. That is ok. That is part of the gig. Be flexible in your expectations.

As I have mentioned a few times, personal insurance can be a minefield. Knowing how much life insurance, disability insurance, income protection or mortgage repayment cover is required, is just one aspect. Each insurance product has their own unique characteristics. And each insurance provider has their own particular pros and cons. The top providers work hard to make sure their products have a unique spot in the market. Your professional insurance adviser will help you navigate those differences, so that they find you the right protection, matching your circumstances to your budget.

Dominic started Bolster Risk Management to help people along their personal finance journey.

He believes that personal insurance is the bedrock to financial security and wealth creation. You have to protect your greatest asset, your ability to earn an income.

Underpinning this is a philosophy that says Your Money Matters.

Women and Money

April 11, 2022 No Comments

There is no denying that there are clear discriminations when it comes to women and money and I will discuss these. I actively want to encourage women to have agency over their financial affairs. Read on, let’s see how I do. … Read More

6 secrets you need to know before you get disability insurance

July 9, 2021 No Comments

Do you understand why you should have disability insurance? … Read More

I don’t have a mortgage so I don’t need life insurance – right..?

April 30, 2020 No Comments

The banks have done a great job convincing people that if they have a mortgage, they must have insurance. A strong argument, but not necessarily correct. … Read More

How much do Financial Advisers Make?

October 5, 2020 No Comments

“Loads of doh” or “too much” may be your first thought. How much is “too much”? Money is a representation and transfer of value. What is value in this instance? Is the job that is done by the insurance agent,

The 5 Pillars of Personal Finance

December 8, 2021 No Comments

Are you using tomorrow’s money today? What happens when tomorrow comes along? Are you spending more than you earn? What if your income stops? If you are spending money today that was meant for tomorrow, then you have a problem. You will at some stage need to catch up. Are you getting the right information? … Read More

Protect Your Biggest Asset

March 25, 2021 No Comments

Protect Your Biggest Asset What is your biggest asset? Unless you’re Kim Kardashian or earn a royalty income, your biggest and most enduring asset is probably your ability to earn an income. Most of us have insured our house, possessions,

The post 6 secrets you need to know before you get disability insurance first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Common Insurance Buying Mistakes

Dom Bish — Tue, 25 May 2021 05:01:54 +0000

https://bolsterriskmanagement.com/

COMMON INSURANCE BUYING MISTAKES

Unexpected losses can put the best-laid financial plans in turmoil. Insurance coverage is necessary to protect against unexpected costs, property loss, and disability. There are no universal answers to the question of how much insurance is enough. Situations vary. Today we are talking about personal insurance (life cover, disability, trauma, income protection etc…).

A single 22-year old, unmarried, in perfect health, without dependents has different needs than a 35-year old working mother of four. But both certainly need insurance coverage.

Some types of insurance are expensive, but that doesn’t mean they’re unnecessary. It’s important to determine your needs before comparing policies.

Consider these insurance buying mistakes:

Choosing an excess that is too low. This is relevent to health & medical cover here in New Zealand. By doubling your excess, you could seriously cut your monthly premium. Save the extra money in your savings account. If you do have a claim, you’ll have the extra available to cover the higher excess. If you don’t have a claim, it’s money in your pocket or your rainy-day account. Do the math and make an informed decision.
Assuming your pre-existing conditions will exclude you from all insurance types and companies. Insurance products and providers have different requirements when it comes to your pre-existing conditions. There is no ‘three step’ rule to whether a condition will be covered or not. You’ll need to get professional advice from a financial adviser who has a good relationship with a range of insurance companies. They will be able to find you the best cover according to your condition.
Buying life insurance when you don’t have dependents. It’s challenging to think of a reason for carrying life insurance when you’re single and dependent-free. Life insurance isn’t necessary for everyone. Avoid paying for policies that you don’t even need. If you have excessive debt however, you may need to reconsider this point. If you are young, consider how you would pay your way if you were never able to work again. Permanent disability at a young age can create a lifetime of financial misfortune.
Buying life insurance coverage for your children. Unless you’re financially dependent on your children, it doesn’t make sense to insure them. Life insurance is to financially protect the people that are left behind. If you’re children aren’t contributing financially, avoid insuring them.
Failing to review a company’s complaints. It’s not all about the premium. Saving a few dollars each month might not be worth the hassle when it comes time to make a claim. See how other insurance customers rate their experiences. Paying a couple of dollars more each month might be worth it. A good financial adviser will be able to help you with identifying the market leaders in this area.

Failing to review all the options each year. It’s common to stick with an insurer for decades. Avoid letting the past determine the future. Review all of your insurance policies each year. You’re bound to find at least one better option. Make sure your adviser talks through all the options with you – changing your personal insurance policies may put you at a disadvantage. A few dollars of savings may mean that your pre-existing conditions are not covered by the new company – choose carefully.
Only shopping by premium cost. The monthly premium is often the only factor considered by those searching for a policy. You will notice this is becoming a common theme in the article. What are you actually getting for that premium? Remember to review all the benefits the policy provides. Buying a ‘skinny insurance product because it is cheap, may just end up being a bad economic decision in the long term. Insurance companies are not silly. If they are selling you a ‘skinny’ product it means that they are saving on their costs – that may effect you if you need to claim.
Failing to buy disability insurance. You’re at least 5 times more likely to be disabled than to die, regardless of your age. How will you pay your bills and care for your family if you’re unable to work? Disability insurance can be expensive, but it’s one of the most important policies to carry. There are cost-effective ways to manage your risk without spending too much.

Avoiding mistakes is an effective way to ensure success. Insurance can be expensive but shopping around can make the necessary coverage more affordable. Determine your needs and purchase insurance intelligently. Even better, speak with a professional adviser. They will walk you through different options specific to your circumstances and budget.

The post Common Insurance Buying Mistakes first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

“It will never HAPPEN to me”

Dom Bish — Wed, 29 Apr 2020 21:38:53 +0000

https://bolsterriskmanagement.com/

A Fireman’s story

I have a recent client, a fire fighter with over 9 years experience, who was injured in non-fire workplace accident. It has meant that he will be off work for around 14-18months while he recovers back to full-time duties. He and his wife have some bare-essential cover for personal risk, some life insurance and a small trauma amount. They didn’t have any income replacement options, except the for trauma, which only pays on around 47 specific health conditions. Don’t get me wrong, trauma is a great product, but can be limited, as this experienced fire fighter found out.

Because his incident was a workplace accident, ACC are paying 80% of his pre-condition salary. This is good, but still a drop in household income for the family (there are young children in the household too). As this person returns to work, his ACC payments will be reduced pro-rata for the hours he works. The Fire Service will increase the salary payments to him, but there will still be a shortfall in household cash.

In New Zealand, we are very fortunate to have ACC, which is a state run accident insurer. We are also fortunate to have a social safety net with the WINZ sickness benfefit. However, this benefit is means tested, which effectively looks at all household income (not just the person effected) to deteremine how much to pay. The maxmium aailabe for this benefit is around $343 a week (less any other income for the household). Many families that I see would not qualify for this benefit.

Back to our fireman, one thing that this guy kept saying to me was, “I used to think it would never happen to me”. He is fit and sporty and thought he was bullet-proof. Know he realises that it can all change in an instant.

Gambling on Life

A Recent global Insurance Survey has estimated what the basic insurance is for a two parent, one child household.

To illustrate the level of underinsurance in Australia, Rice Warner’s Underinsurance in Australia 2017 report estimates the insurance needs for 30-year-old parents with children to be:

8x income for life (to replace income)
4x family income Total & Permanent Disability

This is for basic household cover.

Another source, from a financial planner (again in Australia) considers that the minimum cover should be

75% Income Protection with a 90 days wait period payable to Age 65
10x income for life insurance
10x income for Total & Permanent Disability

Against this, we can look at New Zealanders, and how many people do not have these types of insurance:

62% do not have Life insurance
86% do not have Income Protection
89% do not have critical illness protection

People think that

It wont happen to them
ACC will cover them
WINZ will cover them
They cannot afford it (any of it)
…They Don’t think about it

This puts the risk and financial burden on the family freinds and businesses to support theses people when the worst happens.

Let’s look at replacing your income for a short period.

ACC will cover me.. Right..?

ACC will cover up to 80 percent of your income in the event of an accident that prevents you from working. It does not pay an income income for you or your family iif you are too sick too work or have a trauma or certain kinds of disability such as a stroke.

The government will help… Right..?

The Government’s universal sickness benefit entitlement is around $343 a week. However this is only paid once all other household income is taken into account. This means that many families find themselves too well off as a household to qualify for a sickness benefit, but too poor to pay the mortgage and food bills.

Many families without income protection insurance find themselves experiencing serious financial difficulty v if the main household income earner were off work for as little as a month.

In many cases households will only last 4-6 weeks if all their income stopped tomorrow – this is what families tell me everyday.

Self-employed…? Look out, you could be in real trouble. Meet Pete…

Pete took out Income Protection 4 years ago when times were good. He was earning $100,000 consistently for a few years, times were good. In the last couple of years, there were different contracts, a couple went bad, in the last 2 years his income was only $75,000.

Pete has a great accountant who minimised his taxable income due to the deductible costs associate with the business. This means that Pete’s financial returns show that his taxable income is only $50,000.

2 clear issues

The IP that he got will only pay to his current provable earnings as he is on an Indemnity product
Any ACC claim will only pay to 80% of his proven taxable earnings ($50,000).

2 scenarios:

Pete has an accident and breaks his hand. He was having a bad day, momentary lapse of concentration, and the slab of concrete he was close to slipped its shoring. Luckily the hand should recover in 12-18 months.
1. ACC will pay Pete 80% of his $50,000 = $40,000 [this assumes Pete is on ACC Cover Plus , and not Cover Plus Extra]
2. The gap between what Pete actually got ($75,000/12=$6,250.00 ), and what he gets from ACC ($40,000/12=$3,333.33) is $917 out of pocket each month for 12-18 months ($35,000-$52,500).
Pete has a minor stroke. He is only 49, but he will be out of work for 12-18 months while he fully recovers his motor and cognitive functions.
1. Pete will not get ACC as this is not an accident
2. Pete will not get his income protection amount set at his prior earnings of $100,000 when he took the policy out, even though he has been paying premiums on this. Becasue Pete’s policy is Indemnity, the insurance company will want to see his financial returns. When they realise that his taxable earnings (even with some write backs) is closer to $60,000, they will pay on 75% of this lower amount each month (($60,000/12=$5,000.00) x75%= $3,750)
3. On Pete’s earnings of $75,000/12=$6,250.00, this will be $2500 a month less for his household to live on (or $30,000 less over 12 months).

Now if you are self employed, and see your self in Pete’s type of position, how would your household survive with $30,000 less a year? Remember too that the earnings from ACC and the Indemnity products are both taxable. That’s right, both are still yet to be taxed (in the above workings).

There are other products and strategies that can be put in place to limit these risks. The above is by way of example for people who believe they are ‘covered’ but actually have exposure to risk for their families. Their families will be worse off for 2-3 years (physical recovery and then financial recovery – to get back to where they were prior to the health event).

Protecting income has to be the biggest concern for families – without income the family starts to hurt very quickly. If you see yourself in any of these situations above, or you want to talk through your current insurance strategy with me, I’d be happy to help where I can.

Life Insurance for when life happens!

The post “It will never HAPPEN to me” first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

I don’t have a mortgage so I don’t need life insurance – right..?

Dom Bish — Wed, 29 Apr 2020 20:43:22 +0000

https://bolsterriskmanagement.com/

“I don’t have a mortgage so I don’t need life insurance – right..?”

The above is a sweeping face-value statement which, on the surface, may seem justified.. However… Is life insurance only to cover your debts if you kark it and end up on the pile of the no-tomorrows..?

Maybe, but maybe not. As with all things personal insurance, there are many factors, which effect people individually Here are a few reasons why

While life (death) is the insurance that most people think of first, it is by no means the only type of cover to consider. From here we can progress on two streams of thought; (a) what is the purpose of life insurance if you die? and (b) what are the financial risks to you should something happen that effects your ability to earn an income? These are not necessarily mutually exclusive questions – if you die, you income-earning ability stops!

There are a heap of other questions that feed from either stream, some overlapping, some taking us in seemingly random tangents. A good adviser will try to uncover as much as possible, asking many questions and painting many scenarios along the way. All in the hope of understanding what your key financial risks are so that an informed, logical and strategic recommendation can be made to their client.

2 examples – no mortgage – both have insurance

I have two examples below which may give pause for thought, neither case has a mortgage, yet both are exposed to financial risks.

Young, male, no mortgage, pays rent, good job – Mac (Auckland)

Let’s meet Mac (not his real name obviously), living in Auckland, renting with some friends in town. Mac has a good job and is moving along his career path in engineering. In his mid-twenties, he is not quite ready to buy a home yet his parents think that he should. He has a small amount of debt (less than $20,000) which he is paying off quite quickly.

Mac’s main concern is that something happens and he is not able to work anymore or earn an income. The last thing he wants is to be a burden on his parents, who are approaching retirement themselves.

If Mac dies:

Mac doesn’t have anyone that he would wish to bequeath money to. However, he wants his funeral paid for (and for his body to be repatriated back to Singapore). Mac also wants his debt repaid in full. The sum total of Mac’s life insurance would be less than $50,000.

If Mac is unable to work for 12 months due to illness:

Mac wants to still be able to live in his current accommodation. To do that though, he needs his rent and expenses covered. A monthly paying disability insurance product similar to income protection (or one of the variations) would help here.

If Mac is never able to work again, due to permanent disability:

Mac would still wish to purchase a property, even if it was a small unit or apartment. Having a lump-sum TPD (total and permanent disability) insurance to cover this expense would give him some independence, even though he would never work again in his occupation.

Single mum paying rent single household earner – Maggie (Napier)

Maggie’s turn to say hi. She has recently left her troubled and violent marriage with 3 kids in tow. One child has mild autism another has ADHD. Qualified and working full time, Maggie is keen to put her past behind her and move on with her life. She has been left with virtually nothing financially and so is on a fairly tight budget. That being said, she works in the health department and knows all to well how one’s health can suddenly change. Maggie wants a basic plan in place for a couple of years while she gets back on her feet financially. Then we will review her strategy and adjust what we can.

If Maggie dies:

The 3 children need looking after – therefore a fund is now in place that should Maggie die, the children will at least get through their school years.

If Maggie has a serious health condition or illness:

If something serious happens to Maggie’s health, such as an episode of breast cancer or a heart attack, she will have a lump-sum of money to keep her household running for up to two years while she recovers.

The banks… Who’s debt are they covering? What’s the bigger picture?

The banks have done a good job of perpetuating this impression by advising everyone who gets a mortgage to get life insurance to cover the debt. Of course much of the time they are focused on covering their own liability – the mortgage.

Personal insurance is more than just paying debt if you die, but that a one place to start. Thinking about your own situation, who stands to lose if something happens to you? Are you only thinking about death, or are you also thinking about the ‘living insurance’ – covering your loss of earnings. Speaking with an experienced adviser can help you to think more deeply about these and other types of situations.

If you want to know more about this type of product, or you are concerned about your own policy and whether it properly covers your risks, drop me a line – I’d love the opportunity to chat and walk through it all with you.

The post I don’t have a mortgage so I don’t need life insurance – right..? first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..