Life insurance | 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.

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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..

Inflation, Savings and Life Insurance

Dom Bish — Thu, 03 Mar 2022 01:43:24 +0000

https://bolsterriskmanagement.com/

Inflation, Savings and Life Insurance

We often hear the words ‘rising inflation’ and ‘rising interest rates’ but do we really understand these terms and the impacts they can have on us financially? What is inflation anyway and what does it have to do with the price of fish or the price of tomatoes which has received a lot of media attention lately?

More importantly, what impact does inflation have on your savings and in turn your retirement nest egg? Surely, it will not impact on your life insurance or does it?

Key ideas:

What is inflation?
And the price of fish and tomatoes?
Your savings and their returns
Life insurance and inflation – a double-barrelled impact

Read on to find out exactly way understanding the impacts of inflation is important to your short and long term financial wellbeing.

What is inflation?

In economics, inflation is defined as a general progressive increase in prices of goods and services in an economy.

Simply put, inflation means that money is losing its value in that each unit of currency buys fewer goods and services which results in a reduction in the purchasing power of money. As the Reserve Bank (NZ) says “The underlying cause is usually that there is either too much money available to purchase too few goods and services or that demand in the economy is outpacing supply. In general, this situation occurs when an economy is so buoyant that there are widespread shortages of labour and materials. People can charge higher prices for the same goods or services”.

The common measure of inflation is the inflation rate, the annualised percentage change in a general price index. A price index is the average price statistically designed to help to compare how these prices, taken as a whole, differ between time periods.

The chart shows inflation per year since 1960. The Reserve Bank (NZ) has a remit to keep inflation between 1% and 3%, on average. They will use the Official Cash Rate (ORC) as their main tool for implementing monetary policy. They use the ORC to influence the 90-day bank bill rate. This in turn effects domestic interest rates and the foreign exchange rate. By altering these rates, the Reserve Bank has influence of the costs of borrowing money in New Zealand, and thereby influencing the level of activity and inflation in the economy.

And the price of fish (or tomatoes)?

The Consumers Price Index (CPI) measures the changing price of the goods and services that New Zealand households buy.

To calculate CPI a fixed ‘basket’ of goods and services is selected. Items are selected to determine their relative importance based on spending patterns. The items in the CPI basket represent how New Zealand households spend their money.

The prices of the goods and services in the basket are collected over time to measure how they change. You can find out about price changes for 11 CPI groups:

food
housing and household utilities
health
recreation and culture
education
communication
clothing and footwear
transport
alcoholic beverages and tobacco
household contents and services
miscellaneous goods and services.

Tied to the Consumer Price Index, is the consumer purchasing power this indicates the degree to which inflation affects consumers’ ability to buy. As a general rule, if income rises at the same rate as inflation, consumers can maintain their present standard of living.

For most of us the impacts of inflation is most noticeable when we go supermarket shopping. We sure do notice when things we buy everyday increase in price each time we go, hence the recent focus on the cost of tomatoes which have dramatically increased in cost when compared to this time last year or the years before.

If you want to have some fun, use the Reserve Bank of New Zealand’s inflation calculator to see what something that cost $1 in 2000 is priced at today. A declining purchasing power by nearly 39%.

The fish that may have cost you $9 per kilo ten years ago now costs you $10.62 per kilo. This might not seem that big of a change, until you think about all the other items in your shopping basket and all of that adds up especially if your income has not risen at the same rate.

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Your investments and their returns

As highlighted above while inflation erodes away your purchasing power, it also means your savings takes a hit.

Let’s look at what this actually means with an example. At the time of writing, an average 6-month term deposit rate is giving savers a return of about 1.6% per annum and the rate of inflation is at 5.9% per annum. This means that your savings, that money you have safely in your bank account is actually losing you 4.3% per annum. In other words it is costing you money to save it.

Your investments, especially your long term investments, should be giving you a return rate above the rate of inflation so they can continue growing and compounding for you.

You don’t want to reach your well-earned retirement years to discover that your nest egg is much smaller than you’d expected because inflation has eaten it away. In other words, you need to remain proactive to ensure you are keeping on top of inflation.

Life insurance and inflation – a double-barrelled impact

The impact on life insurance is more interesting, but it can also catch out if you are not aware. The premium for insurance is basically made up of three parts. For life insurance, the three main ones are age (each year you get older, the cost goes up), the price of the product, and CPI.

Many policies are indexed to CPI. This is a good thing as you want to make sure that the policy you bought 20+ years ago, is still ‘worth’ as much you wanted at the time you took it out.

Let’s go back to that calculator. Let’s assume you got a $500,000 life insurance policy in the first quarter (Q1) of 2000, but you did not have it linked to CPI (use the general category on the calculator). If you died today, your family will get $500,000. That might be enough, but in today’s money, that money is actually worth $816,109 (2021 Q4). That would mean your family are potentially short by $300,000 in today’s money. (The caveat here is that circumstances may have changed so you might only need less, but we are keeping this example simple).

The next part in all of this though, the double-barrelled part, is the premium. If you don’t link your premium to CPI, then your premium will not increase by as much, i.e it is not keeping up with the cost of living. In short, you will be paying for less benefit and your premium will only be determined by your age and the price of the product.

However, if you do have your life insurances linked to inflation, you can potentially see quite large price increases over the years, not just due to the CPI, but because the sum insured is increasing too.

This is why having a good adviser is really important as they will talk to you about what you want to achieve and will help you understand the cost versus the pay-off to make this happen.

[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 Inflation, Savings and Life Insurance first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

The Basics of Personal Insurance

Dom Bish — Thu, 14 Oct 2021 23:37:22 +0000

https://bolsterriskmanagement.com/

Who is this article for?

This information article is aimed at helping anyone gain a basic understanding of insurance. Bolster Risk Management deals in ‘personal insurance’.

This means anything that effects the body (such as health, accident and death).
There are other types of insurance, such as boat, car and house insurance.

These are typically known, rather antiquatedly, as ‘fire and general’ cover. This booklet does not deal with these.

Note: this is not a policy document. It’s a basic guide to some of the more relatable insurance issues, the ones we discuss with clients time and again. Always seek advice from a registered adviser if you have any insurance questions.

What can you expect to read?

Common questions and concerns from people like you. We speak to a lot of people – we love to, it’s our job – and the people we speak with all tend to have similar questions and concerns.

These include:

Why do I need insurance?
What will it cost me?
What types are there?
What if the insurer fails?
What if they don’t pay claims!

Why do I need a broker?
What does a broker do?
Who pays the adviser?
Why is it so complicated?

What exactly is insurance?

History

Insurance has been around since the Babylonian traders. Life insurance as a category was not formalised until the first contracts written in the early 1700s. This gave rise to the use of the mortality rate, a measure of the number and causes of deaths. This quickly led to the use of ‘actuaries’, those who look at all possible risks and quantify these risks into possible liabilities.

So, what is it?

Insurance is simply the transfer of risk, from one person (or entity) to another. It is a means of protection from financial loss, or more formerly, risk management. Essentially, you pay a premium to someone else, an organization, usually, so that if a risk event occurs, you are financially covered.

Ok… so, show me how it works…?

A simple way to describe what it is, is to describe what might happen if you had it.

Let’s say that Leon has a family and a mortgage owing $500,000 to the bank. Unfortunately, Leon dies, leaving his wife and family with that debt.

The simple risk = $500,000 to the bank. But what does that mean in practical terms? The bank could foreclose or repossess the house if the family is unable to pay the mortgage repayments.

Therefore, the actual risk = $500,000 and the loss of the family home, a slightly different and, let’s face it, less attractive picture.

The solution: Pay someone else a small amount (a premium to the insurance company), so that in the event of death, the insurance company will give Leon’s wife $500,000. This means the risk has been transferred from Leon to the insurance company for the price of the premium.

Product Types

Broadly, there are five types of personal insurance: Life, Trauma, Income Replacement, Total and Permanent Disability (TPD), and Health and Medical insurance.

Life insurance

Death cover (a lump sum benefit). Some insurers will pay on terminal illness (if you are likely to die within 12 months).

Trauma insurance

Serious illness or accident (lump sum cover). Sometimes known as critical cover (although this is occasionally a ‘skinny’ version of a full trauma product).

Income Replacement: Income Protection

Replaces part of your income because you become too sick or injured to work (monthly paying benefit). This type of benefit is often offset by other income (such as ACC payments).

Income Replacement: Mortgage Protection

Pays most or all your mortgage repayments on a monthly basis because you are too sick or injured to work. This can also be used to replace a portion of your gross income, (can be up to 45%) to help pay rent and other expenses.

Total and Permanent Disability

Never able to work again? This may mean that you cannot work in your current occupation, or you may never work again in any meaningful capacity. It pays you a lump sum benefit.

Health and Medical

For elective treatment (not acute), i.e. it’s for surgery, not a car accident. If you need a shoulder reconstruction or treatment for bowel cancer, you may be able to claim (policy conditions may apply).

What is BMI and how might it effect your personal insurance?

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.

Insurers, brokers and you

Insurers

Each insurer has an array different features and benefits for their various products, themselves too numerous and complex to try and distinguish them here. The products categories above are a simplified and generic view, and a method of segmenting them for future discussion. Part of a good adviser’s role is to make sure that the product selected for you matches your situation.

QuoteMonster™, an independent quoting platform that some financial advisers use for insurance, suggests that there are over 20,000 product variations in New Zealand alone. This obviously makes it extremely difficult for the general public, people like you, to navigate through all these variations and product differences.

Brokers, insurance agents, advisors

The purpose of a good financial adviser is to guide you through the process of making the purchasing decision. However, it doesn’t (and shouldn’t) end there. As a lifetime client, that adviser will be there to help you and your family on an ongoing basis, as little or as much as you need them. They can assist you to make claims, to ensure that you get the benefits that you have been paying for, and to review your product choices. The broker is your advocate.

They sell on behalf of the insurer, they help you purchase the products and benefits that suit your requirements, and then they assist your claims if (and when) they occur.

The agents are paid a commission from the insurance companies.

Price, Cost & Premiums

The primary question people ask

How much will it cost?

With so many product variations, the price is difficult to determine. It is not like buying a tin of beans. On top of the varieties of different products, a number of other factors feed into the final cost of premiums. We can, at least, outline what those are.

Below is a list of some of the key factors that influence the price of cover:

What is the total sum insured?
Age of the person insured
Gender – yes, different prices between menand women, determined by risk factors
Smoker or not (including vape & e- cigarettes)

CPI (consumer price index)
Underlying cost of the product, as determinedby each company
Certain pre-existing conditions mayincrease the premium. This will show in the Offer of Terms from the insurer
Weight. Excessive BMI (body Mass Index) willattract higher premiums

For monthly-paying benefits such as income protection and mortgage repayment insurance, there are often additional factors to consider, such as:

How quickly does the insurer start paying?
How long does the insurer pay for?
Are any additional add-ons and benefits applied to the cover

Read this article to get a better understanding of how the premiums are determined.

What if….?

A question that comes up quite often is, “what happens if the insurer fails?”

While there is not a specific guarantee on insurance companies, there are several factors to consider. Each is financially rated with a reputable agency (such as Standard & Poors). The insurance industry is regulated under the Reserve Bank (RBNZ) and the Financial Markets Authority (FMA). From a market perspective, if a company was running into difficulty, it is highly likely that the asset book (all the policies) would be sold to another insurer. The net effect on the policyholders would likely be negligible.

The insurance companies try to avoid paying claims… don’t they?

It is in the interests of insurance companies to pay claims. If they don’t, then people will stop buying their insurance, brokers will stop recommending their products and the company will become less than competitive. The top insurers make a point of telling everyone exactly how much they payout each year, to whom and why.

Most companies will pay around 90-95% of all claims made. Those that are not paid are normally due to the claim not being eligible in the first place. On rare occasions, claims are not paid due to fraud, i.e. claimants trying to claim when they are deliberately misleading the insurer.

Why do I really need insurance..?

The best explanation…

Maybe you don’t need insurance..!
If you don’t have responsibilities to anyone, if your income is fully secure for the next 30-40 years through to retirement and beyond and if you are totally debt-free, then you may not need insurance. For everyone else (!) talk to your adviser to find out more.

We hope this introduction to basic insurance products and concepts was useful. To finish, a little clarification around some common insurance terms.

Keep it simple

A brief explanation of a few terms…

The post The Basics of Personal Insurance first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

The top 8 Mistakes …when buying insurance

Dom Bish — Thu, 14 Oct 2021 22:56:50 +0000

https://bolsterriskmanagement.com/

Not that thrilling…

…but utterly critical. No one will argue that insurance is super-exciting, and a list entitled “ways to spend my money other than on insurance” would be a long one indeed. But, simply put: insurance is an integral part of any financial plan. Because? Because the risks of not carrying insurance are simply too great.

But where do you start? It’s easy to make mistakes when buying insurance coverage – especially if you’re a bit new to all this – mistakes that can result in the loss of your assets or create an unnecessary burden on your monthly expenses. And we’ll be direct here: if you die unexpectedly, and you do not have your financial affairs in order, that burden becomes your family’s.

Taking the time to think through your requirements now, will save many weeks, months and sometimes years of pain, in the future. We reckon that’s reason enough to start a discussion. So that’s what we’re doing, beginning with a few simple bits of information that can really help you avoid those pitfalls, come up smiling and say, didn’t I do well? Yes, you did!

Many of these mistakes we discuss below may be applied across all insurance types. However, the focus here is on personal insurance, such as life, trauma, and disability cover.

Avoid these common mistakes when you’re shopping for insurance:

1. Failing to Shop Around

Companies use a bunch of different equations and calculations to determine client premiums. Some insurers will have more faith in someone of your demographic and risk profile than others. Shop around before you make a decision. It might be the most lucrative time you spend this year. With personal insurance, there are many options to consider. Use a registered financial adviser, who can look at different companies on your behalf, to guide you through that process.

2. Ignoring the importance of long-term care or disability insurance

This type of policy can take a significant bite out of your finances, but it is insurance that most people eventually need. Long-term care is expensive, but crucial. If your budget is limited (and that’s most of us) it’s possible to limit the policy to a two or five-year period to cut your premium.

3. Purchasing an inadequate amount of insurance – or too much

There are some old-school brokers still around who will encourage you to buy perhaps more cover than you should. Sometimes they’re right – bitter experience tells us that purchasing too little coverage is a bigger mistake than purchasing too much. However, purchasing too much will result in a larger expense than necessary. So, what do I do?! Exactly. A good financial adviser will help you find the sweet spot.

4. Unknowingly leaving some financial risks uninsured

Covering your debt and income are two obvious risks to insure. However, what are the future needs of you and your family? Do you have risks that might not be covered? It’s important to ensure that you have at least considered all worst-case scenarios, so that you have comfort in what is covered.

5. Not Updating Coverage

Everyone’s needs change over time. Your insurance coverage should change over time, too. Companies can also change their pricing structure. A “great deal” this year might not be as competitive next year. Re-evaluate your needs annually and after any major life event.

What is net wealth?

Simply, it is your assets less your debts.

This tool will help you add up all the things of value that you own. Then you add up all the debts that you owe people.

The calculator will then tell you your net wealth.

Check out the calculator for yourself.

6. Choosing a low premium structure for your risk strategy

Choosing to “share the risk” with the insurance company is a great way of minimising your monthly costs. However, be sure that you have a financial ‘buffer’ at hand, so that when that unfortunate event does happen, you are not left short. Any savings that you make on the premium should be added into your emergency savings account so that you can be prepared.

7. Buying coverage without background checking the provider

A quick internet reference check can save you a lot of grief. While you’ll always have to filter “review” information, if there are a lot of complaints regarding refused claims or slow response on an insurer you’re looking at, look somewhere else. Lowest price isn’t always the best option, and price shouldn’t be the only factor you take into consideration when buying. Do your homework. Again, this is something that a good financial adviser should be able to help you with.

8. Check your adviser’s motivations

While there are, in the majority, highly ethical agents that would never sell an unnecessary policy, many insurance brokers are focused on the bottom line. Their bottom line. Double-check the information and advice that your agent provides. Use an agent that you can trust, especially one that you think is in for a long-term client relationship. To be fair, in New Zealand, the recent regulations from the FMA (Financial Markets Authority) are rightly making it harder for the ‘quick-sell, slick insurance’ transactions to take place, ensuring the key focus is on developing the client relationships.

Some final thoughts

The thought of insurance can be daunting, and going through it in detail can seem confusing. But insurance provides you with fundamental, critical security. Most of us simply don’t have the financial resources to replace our home or our car, or pay large medical bills when unexpected events strike.

Insurance is a way of protecting your assets and your future.

Insurance coverage will take a portion of your monthly income – and you can decide what that proportion is – but it really is money well spent. How much it costs depends on individual circumstances.

In Australia and New Zealand, we know that many policies will cost 3-6% of the gross household income. This is not a hard and fast rule, but it does give you an indication and benchmark for financial security. Without that security, it is very difficult to plan effectively for the future, especially for retirement. If you have to spend years recovering from a financial loss due to sickness or ill health, those years are compromising, not enhancing your retirement.

And we think that’s reason enough to have “that insurance conversation.” Talk to us, or your financial adviser; we’re here to help.

The post The top 8 Mistakes …when buying insurance 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..

15 Tips for Finding a Good Life Insurance Adviser

Dom Bish — Thu, 14 Oct 2021 02:52:40 +0000

https://bolsterriskmanagement.com/

What does “good” look like?
If you’ve heard that a good life insurance adviser is hard to find, you may well be right. Yet the vast majority of people living in New Zealand will, at some point, need to purchase life insurance. And when it comes to buying something that’s so critical to the lives and protection of your family members, you definitely need the right person to guide you through the process. And, ideally, be in for the long haul.

So how do you find an exceptional insurance agent? Will you know even one when you meet one? What you need is a life insurance agent, (or financial adviser or insurance broker) that will inform you clearly and without bias about the myriad products available and will honestly advise you regarding how much life insurance you will need.

We’ve put together a quickfire checklist that will help get you thinking and can start the conversation. Have a read below to find the 15 tips for finding a good life insurance adviser.

1. Ask Around
Talk to friends and family about their advisers. Word of mouth is still one of the best methods of finding a quality professional. But ask the right questions – what do they like about their adviser?
Why do they trust them? Do they think they’d be the right fit for you? Inquire as to whether they have any concerns regarding their agents’ ability to assist you.

2. Check the staff
When you first make contact with an adviser, you’ll probably speak to the agent’s office staff. How well did the staff member respond to your questions? Did they seem professional and resolve your requests in a timely way? A good adviser will have competent office staff.

3. Shop Around
Talk to 2 or 3 financial advisers. This way, you can do some comparisons and narrow your focus to the agent you prefer to work with. Plus, you’ll want to take the opportunity to find out about their credentials and work histories, which will help you to rule in or out specific agents. Pay special attention to each agent’s diligence in responding to your questions.

4. Check their Experience
Ask some questions around their background. How long have they been selling insurance? Have they worked for other companies or brokers? Gather as much information about the agent’s work history as possible, and think about what else is relevant for your decision.

We have plenty of tools and calculators to help.

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.

This tool will allow you to have a better chat with your financial adviser.

5. Check the financial adviser’s registration

In New Zealand, every financial adviser must be registered with the Financial Services Provider Register with the Companies Office. If you cannot find your adviser there – do not use them! New laws have come into force that tightens the definition of financial advice further in favour of clients and the public. There is more compliance for your financial adviser than there is for your accountant!

6. Favour Independence

Focus on obtaining an independent insurance agent. This type of financial adviser can sell a variety of insurance products from numerous providers. This is to your advantage. To explain: if you make contact with a specific insurance company and work with one of their agents, then the only type of policy that agent can sell is one of that particular company’s. However, with an independent agent, you’ll be offered a wider selection of insurance products with a better likelihood of finding one to fit your specific needs. The more insurance companies that the financial adviser interfaces with, the better the chance that they’ll be able to find a policy that fits you and your needs – and your budget – like the proverbial glove.

7. Trust Your Instinct

If an agent says right off the bat that they have the “perfect” policy for you, be suspicious. Finding the right policy takes some quality Q & A time between you and the adviser, so that they have a real understanding of what you need – and what you don’t. And don’t let them push that “perfect” product on you: the final decision will be yours to make.

8. What’s that??

Make sure they know how to listen. If they start pressuring you to head in a certain direction or focus on a certain product, they haven’t been listening, deliberately or otherwise. Vote with your feet and move on. An effective adviser listens and is attentive; they don’t get to do all the talking.

9. Takes Time to Get to Know You

A good adviser is one that will sit down and really focus on your financial needs, your deal-breakers and must-haves. His or her recommendations must be solutions that work well with your own personal circumstances and your situation.

10. Is Responsive

How quickly did they return your calls? Whenever you have questions or comments about an insurance policy or claim, a quality agent should call you back (or email a response) within 24 hours if they were unavailable when you called. You should be that important to them.

Visit our range of courses to help with your money matters

11. The Adviser Combo: Tact, Understanding and Knowledge

An effective adviser understands where you’re coming from. They’ll listen to you and then present you with facts and examples that provide clarity regarding the insurance you’re looking for, information that helps allow you to make an informed decision.

12. The Adviser Combo II: Honest and Impartial

There is no such thing as a dream product. Everything has benefits, and some will have shortcomings. A good, fair, and smart adviser will tell you about any downsides as well as the benefits of the policy. Their advice will not be biased, and they will recommend products that suit your needs (not theirs). This is especially relevant if you are changing your policy from a particular provider or modifying your risk management strategy.

13. Has general legal and tax knowledge

A good agent should be able to explain to you the general legal and tax implications of a policy. Specific legal and tax knowledge, however, should still be directed to your lawyer or accountant.

14. Is friendly!

There’s a thought! It’s a serious business, but an approachable manner is critical. You’re going to like dealing with someone that you’re going to like dealing with! A competent agent will have a smile on their face and openly chat with you.

15. And not pushy

The days of white shoes and “close the sale” are long gone. You should never feel pressured; you should always feel comfortable.

When you’re seeking an insurance broker you can trust, look for these characteristics. Trust your own instincts about whether someone is the right financial adviser for you. With a little background work, you’ll find an engaging, professional and knowledgeable agent whose focus is to fulfil your insurance needs. Your objective is to protect your most precious assets and find the perfect life insurance to protect your family’s future. Choosing your adviser is the first step.

The post 15 Tips for Finding a Good Life Insurance Adviser first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

Not Another Covid Article – Life Insurance NZ

Dom Bish — Wed, 29 Sep 2021 02:47:41 +0000

https://bolsterriskmanagement.com/

Not Another Covid Article – Life Insurance NZ

“What does it mean to have life insurance? What is the value in it? What is it for anyway? I’m sure it costs too much, right?”

This article has nothing to do with Covid-19.

Key Ideas:

What does life insurance do and why would I get it?
Let’s start by being average
How much? What I want, or what I need to meet my circumstances?

What does life insurance do and why would I get it?

Life insurance, on face value, is the simplest product in the personal risk insurance arsenal. You die, and your estate gets a lump-sum payment from the insurer, depending on the amount you’d insured yourself for. Many of the top insurers and providers will offer additional benefits, such as terminal illness, financial planning assistance, or a small benefit for child funeral costs.

Broadly, insurance serves to protect you from risk. You pay a premium to transfer the risk of (a catastrophic) event happening, so that the people you paid a premium to, will compensate you when the said event happens. In the example above, death is the event. The compensation is the lump-sum paid to your estate (or the policy holder of your insurance), from the insurance company.

Life insurance is typically used to repay debts and replace income for surviving family. There can be other motivations, but these are the most common. You may hear the term ‘risk protection’. The risk is financial loss, which in the above scenario, would occur should the policy holder (i.e. you) die. Your loss of income will have an impact on your outstanding debts and the family that you leave behind, and who presumably, rely on your income. Your debts need to be repaid. Your family need to eat and have the roof over their heads.

Often, there can be a trade-off, in terms of what people can afford so they will focus on their biggest risks. The banks, when they sold life insurance policies under their own brands for their own pockets, really did a number on New Zealanders. They taught people extremely well, that the mortgage debt had to be repaid before any income to the surviving family. Repay the debt, your bank is happy, so you have an insurance policy to keep your bank happy. Yippie, thanks Mr Banker!

Many people still have this mindset. Pay your debts first, then there is less financial burden on the family to service those debts. Don’t get me wrong, this is a sound strategy. But don’t forget to feed the ones you leave behind too.

A simple way to do this, is to look at your income, and multiply it by a number of years. This will give the family time to ‘climatise’ to their loss of you, and adjust to their new circumstances. This methodology will not work for everyone, but it is a simple starting point. That starting point, is in trying to assess just how much insurance you need?

The Average

Let’s look at an example for the two basic protection-themes of life insurance.

Income replacement

The average wage in New Zealand is around $71,000 (Stats NZ). The average household income is $107,196.

Debt Repayment

What is average debt? The household debt is 165.6% of gross household income. This takes into account mortgage loans, consumer loans such as credit cards, and student loans.

Using these numbers then, $107,196 x 165.6% =

$177,516 as an average household debt amount.

How does this help us? The number might be the starting point for people in a similar situation. However, there is also considerable evidence about people being under–insured. Next, we consider the average amount that people are insured for.

What is the average life cover sum insured?

Each person’s situation is different. Some insurance is better than no cover whatsoever. Using the data from one of the major providers in the market for 2020, the average claim for life insurance was $230,000.

If we simply take just the average debt away from the average sum insured amount, we get

$230,000 – $177,516 = $52,484

Based on either the average wage or average household income above, this remaining amount is far short or a suitable replacement income for the surviving family. The family may see only approximately 6 months of equivalent income, certainly once a funeral has been paid for. Is that enough?

How much? Gold platter or meet my circumstances?

The question of “how much cover should I have?” has an answer that can be “as much as you want and can afford”. Obviously the higher the amount the cover, the higher the premium cost is to you.

We will continue our ‘average’ theme. In this example, we’ll quote an adult female, 38 years old and a non-smoker, using the average amount above of $230,000. Her cost would be around $10.70 per fortnight.

This cost will go up each year, as our female example will get older, and the provider will adapt their pricing based on the market. By the time, she reaches age 60, her premiums may be up around $70 per fortnight. This type of premium option is the most common, and is known and YRT or yearly renewable term.

People can ‘fix’ their premiums in a similar way to ‘fixing their mortgage’. It is known as levelling the premium. You pay a little more to begin with, but you can save thousands over the life of the policy. Our female example would pay maybe $25 per fortnight when she is 38, and would continue paying that price, through to age 80. Even by age 60, our friend would be saving herself $55 a fortnight by following this method.

In the claims statistics used earlier, the youngest claim was a 21-year-old. Death from cancer accounts for 37% of all claims. The question to ask yourself is, who relies on your income? If you die and that income stops, how will that change things for the people you leave behind? Life insurance is not for you, it is for those others you care about.

While we may want or feel that we need the best level of cover, or insure for the highest amount, we must balance that with our budget. For some, insuring your life for $230,000 may be way too high, for others it will be way too low. It doesn’t matter.

Some cover is better than no cover.

Some insurance is better than no insurance.

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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.

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The post Not Another Covid Article – Life Insurance NZ 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.

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I use marijuana – can I get insurance?

Dom Bish — Mon, 03 Aug 2020 15:55:00 +0000

https://bolsterriskmanagement.com/

MaryJane is not everyone’s choice, but for those who partake, are they punished by the insurance companies? Not necessarily.

KEY TAKEAWAYS

Stigma, myth and reality
What do the underwriters look at
Compounding issues (mental health, DUI, other drug use)
Back to earth… effects in the real world?

Marijuana will become more topical for New Zealand as we head towards the September referendum on the legalisation of cannabis use. This article is not to help you form an opinion on that, but to view the situation from your financial risk management.

Personal insurance policies, life insurance, trauma cover and the like all get assessed on application. What does the occasional toke mean for users and their personal protection plans?

There is a perception among the general public that all and any drug use is a no-go for insurance. It is true that many narcotics are woefully harmful to the mind, body and spirit. However, as with alcohol, which as a legal intoxicant is a useful indicator, there are obviously ‘grey areas’ where insurance underwriters may be comfortable with the health risks posed by use. We know that insurance companies do not look kindly on excessive alcohol consumption or smoking (including e-cigarettes and patches in some cases). But they will still accept some level of consumption.

What do the underwriters look at?

The underwriters have the unenviable task of balancing the needs of the client against the potential risk to the insurer. They will look at the prospective client’s application both as individual parts (conditions) and universally (how do the various conditions relate or affect others).

There are a few basic questions that they will ask to determine the severity of the condition.

What is the condition?
How long has the person had it (when was the diagnosis)?
What diagnostics and treatment were used (if any)?
Have symptoms stopped, if so for how long?
Is there any expectation, or recommendation for, future treatment and diagnostics?

These questions form the basic assessment of most conditions that underwriters will address, when looking at a new application for insurance. Depending on how ‘complete’ the information supplied is, they will either decide here (say ‘yes’ or ‘no’) or request further details. The first place they go for more information is the GP’s notes for the client.

Back to our topic of marijuana use. There will be questions around how much and how often. Are other non-prescription drugs used, if so which and how often? Was the drug use due to a specific reason, such as depression?

It really is important to be honest with your adviser when you are making your application. Neither your financial adviser nor the insurance companies to whom you are applying will report you to the police for drug use. However, incomplete disclosure may have serious consequences at claim time. If you have not disclosed a known condition, your insurance company may decline your claim.

This is an important point too; what types of cover are being applied for? The underwriters have different threshold requirements for different products. For example, life insurance products do not typically attract as many questions as a monthly paying, income replacement benefit does, like income protection.

Compounding issues (mental health, DUI, other drug use)

As mentioned above, after each condition is assessed individually, then the applicant is viewed as a complete picture.

For example, with drug use, mental health and depression may play a factor. If so, that sets off another round of questions related to depression (how long, what treatment, date of last symptoms etc). Has there been a loss-of-driving conviction due to previous drug and alcohol use? Are there any other health factors that have been disclosed on the application that may provide a different view for the underwriter? For example, are other narcotics used recreationally? If so, then the applicant potentially has a history which could be viewed as unstable for certain insurance products.

Back to earth… effects in the real world?

So back to earth we gently descend. If someone is classed as a moderate recreational user (once a week for example) of marijuana, they can most likely get standard insurance cover, without extra price loading or conditions. However, as shown above, if other narcotics are (or have been) used, then that may change the decision. If there is a history of mental health problems, depression and a DUI charge, then things may get more complicated.

What this article should do is provide some reassurance that, just because someone has a condition or a makes certain life choices, that should not be excluded from cover. Insurance companies, believe or not, also live in the real world. If you can prove that you are not that risky to them, they will insure you.

The post I use marijuana – can I get insurance? first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

What Is The Best Age To Get Life Insurance?

Dom Bish — Tue, 28 Jul 2020 18:08:21 +0000

https://bolsterriskmanagement.com/

The younger the better. Simple answer. You don’t need to read anything else.

Ok, so you’re still reading. Life insurance is all about managing risk. What is risk? Roll a dice. You have 1 in 6 chances of getting a 6, or you have 16.6% chance of getting a 6. You have a 20% chance of getting cancer because you live on planet Earth. That means, if you are in a room with 10 people, you know statistically that two of you will get cancer. You just don’t know which 2. That is the risk. More importantly, you don’t know when two of you will get cancer. Don’t make the assumption that only old people get cancer (to continue using this example), Starship hospital in Auckland is full of children who are battling cancer.

KEY TAKEAWAYS

If others depend on your income then you need life insurance
If you have debt – then you need life insurance.
The sooner you purchase life insurance, the better – pre-existing conditions
The sooner you purchase life insurance, the cheaper the cost

Many of you reading this will have a job. Many of us contribute to a household in some way and are responsible for someone else. The money you earn goes to pay for rent, mortgage, food, clothing, cars, school trips, Spotify, Sky Sports, after-school activities, grandma’s groceries, paying off the credit card… Yup, we earn money and the money goes away.

What would happen if you died? That income would stop. That is why you have life insurance. It providers a lump sum to the people you care about. Even if that is only equivalent to a few years of your income, they are a few years where your family can grieve and learn to live and support themselves without you being around.

If you have debt

This is an easy one. Do you want your debt to become your family’s burden just because you went and got yourself killed falling off a ladder? That 10-year-old BMW you like so much, that you’re paying $500 a month for, might be ok while you’re working. But once you’re dead and the income stops, can your family support that?

What about the mortgage? Let’s say your repayments are $2200 a month. If that debt has been paid off by a life insurance policy, your family don’t need to find an extra $2200 to survive. Suddenly their lives (financially at least) may be a little easier because you took out a policy.

Pre-existing health conditions?

The longer you live, the higher the chance of something going wrong with you (remember the dice at the start?) If you get life insurance while you are fit and young, any new conditions will be covered (as long as you stay with the same insurer).

The cost goes up the older you get

Death and taxes, the 2 certainties in life. Insurance premiums rising is another. However, it is possible to fix your premium in the same way you might fix your mortgage payments. There are some fish-hooks to be mindful of, and not all policies are the same. But if you start when you are young, you can save thousands of dollars on your premiums. Yes, thousands! For example, a 30-year-old male non-smoker could save over $14,000 on a $200,000 policy by the time he is 65. That type of saving is worth a look.

The correct time to get life insurance will change from person to person, depending on the circumstances. Basically, you need life insurance if other people depend on your income, or if you have debt that will carry on after your death. After all, you don’t want to leave them without money to live on… or up the creek because of your car loan.

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