Money Matters | Bolster Risk Management - Simplifying financial risk, insurance and investments for you.

Women and Money

Dom Bish — Mon, 11 Apr 2022 02:40:46 +0000

https://bolsterriskmanagement.com/

Women and Money

Recently we had International Women’s Day and the Financial Services Council of New Zealand (FSC) encouraged businesses to promote and discuss women and money in the finance sector. This is important and relevant but is difficult for me to write about as a man without mansplaining (wow the autocorrect saw that as a real word!) and to really get to the heart of the issues.

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.

Key ideas

“It’s a man’s world”
Facts, more facts and inference
Strong women help women get stronger
Keep It Simple

“It’s a man’s world”

Is it a man’s world? The answer now would be ‘probably’, but times are changing slowly and I believe for the better.

In 2018/19 when I was looking at the financial services industry, I was trying to figure out if I really wanted this as a career. Did I want to learn a new industry, maybe start my own business one day? Did I want to be ‘just’ another insurance salesperson?

I started taking note of the likes of the Financial Services Council of New Zealand (FSC) and Te Ara Hunga Ora Retirement Commission. They were doing some interesting work on financial literacy in NZ. While I was learning the ropes as a financial adviser, I was talking with people from all walks of life. There were people who had large incomes, yet they struggled on a week-by-week basis. There were single mums doing it tough, but showing great resilience and financial awareness. There were people starting out in their twenties showing more financial intelligence than I ever had at their age. The range of financial ‘success’ was vast, yet the majority of people, were struggling.

Many households have both partners working while trying to raise a family. There is pressure on the finances, pressure to do the kids’ homework, pressure to get the kids to sports training, fed, showered, birthday parties… seemingly endless things to do and think about. As a result, there becomes some under-discussed division of labour, where one person gets the kids to sport, while the other does things to keep the household running.

So the last thing many of these people want to do is to spend an hour with me talking about risk, death and disability scenarios. They have even less time to think about who is looking after the money.

Ah… let’s read that again: They have even less time to think about who is looking after the money.

However, in reality, someone, normally one person out of necessity becomes the ‘money person’ of the household.

Whether it is deliberate or by default it is typically the male who takes on this role. This is not always the case but studies have found that often when women hit their fifties and for whatever reason, their husband is no longer around, they are left on their own. It is only then she realises that she doesn’t know anything about her financial position. This is a daunting and scary situation for anyone to be in.

That is why I decided, in the end, to make this industry my career, because I get to help bring about change, in whatever small way, to help everybody understand that your money matters.

Facts, more facts and inference

Social Structures:

The facts do not lie and these highlight that financial literacy is a big component of the ‘personal money management’ challenge, and I’ll discuss that in more detail later. However, there are also structural and societal forces that exist across the cultural divide.

For example, women experience pay inequity in the labour market and tend to be the family members who take time out of the workforce to care for children or older relatives, meaning when it comes time to retire they have less. We know this not just intuitively, but because a study by Te Ara Hunga Ora Retirement Commission has confirmed this.

The same findings also highlighted that women were disproportionally impacted financially by divorce and domestic violence. To top it off, women also bore the brunt of the COVID-19 crisis with higher rates of job losses than men.

None of these issues has anything to do with financial intelligence. Yet is it any wonder that over 8 of 10 women rate their financial wellbeing as being moderate, low or very low? Based on the uncertainties discussed above, is it any surprise that:

Over 6 in 10 women worry about money daily, weekly or monthly
Over 6 in 10 women don’t feel prepared for retirement

You can read the full report here from the Financial Service Council.

Financial Literacy

This comes up again and again that women have significantly lower financial literacy than men. It irks me to write this, because just by typing it, I feel that I am highlighting and labelling the issue even more. Almost as if, the statistics justify the reasons that women should not handle the household money, because statistically, they are less prepared.

That is most definitely not the case. Women have shown that they handle daily budgets far better than their male counterparts. Many studies on micro-credit or microfinance, show women are far more capable than men and are better credit risks.

That all said, the Commission for Financial Capability’s ‘Barometer Survey’ (2020) found:

Women have lower financial knowledge than men; twice as many men as women answered all questions correctly.
Women who have children have lower financial knowledge score than women without children.
Single women with no children have a higher financial knowledge score than women in a relationship.
The gender gap is largest in understanding simple and compound interest.
The gender gap is similar across all ethnic groups.

The financial literacy statistics for women do not look flash and this is only a part of the picture. Unpaid work, the gender pay-gap, low ‘money’ confidence and societal constraints also hinder progress.

Strong women help women get stronger

For a couple of weeks in March, I joined a few webinars about women and money, getting women into the finance sector and this one with Hilary Barry. One of the key takeaways from these sessions was there are strong women taking ownership, being comfortable in their own skin and owning their place in the world. This leads to other women standing up and starting to shine too.

Men and women think and communicate about money matters in varied ways. The FSC highlighted that “institutional trust issues lead to gender gaps in financial risk aversion, spending and saving preferences, further supporting the view that women manage financial risk, spending and saving differently to men.”

Jane Wrightson talking about her work at Te Ara Hunga Ora Retirement Commission (much of the above is drawn from their research), was empowering. Their National Strategy is focused on three audiences; women, Māori and Pacific Peoples. By working together their aim was to demystify money, by using clear and consistent language. It might sound simple, but helping people learn about debt and saving, and understanding that through cultural behaviours and practises is not simple in reality.

The way forward is strong women helping others, leading the charge, not waiting for men to mansplain or direct them and for them to simply just get on with it.

Keep it simple

Things are changing slowly and taking small steps do make a difference. Many good ideas are simple. For a lot of us, trying to go up against institutional conventions and behaviours is daunting. Having open conversations with your spouse about money is a good start.

Creating a time and date in the family diary to have 30 minutes once a month may work well for your family. If you are on your own, don’t be shy with yourself. Face the situation that you are in, get real with where you are at. Then do a bit each day to make a change.

Maybe it is as simple as checking the bank balance daily so that you can track your spending. Or setting up a new account and automatically putting away $5 a week (or whatever you can comfortably afford). It could be reading the blogs of women who have gone through similar experiences as yours, learning how to make small changes in your behaviour. Find a voice that suits you and learn from them.

Having agency over your money is a powerful thing. No matter what position you find yourself in. Whether it be the comfortable ‘home executive’ or the single mum working three jobs, you both need to have a feeling of control. That and patience. Good change takes time.

So, at the risk of sounding like ‘that guy’, I’ll stop now.

#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 Women and Money first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

KiwiSaver Confusion

Dom Bish — Sat, 12 Feb 2022 00:26:26 +0000

https://bolsterriskmanagement.com/

KiwiSaver Confusion

We have all heard about KiwiSaver and despite having over 3 million members it would appear that confusion and lack of understanding of how it works is the most common talking point.

By the end of the March 2021 financial year, New Zealanders had invested $81.6 billion dollars into KiwiSaver, with $26,410 being the average amount invested. Not bad going for a scheme which started in 2007. However, given such a large amount of money has been invested into KiwiSaver it is hard to believe that there is still widespread confusion.

Key Ideas:

What is KiwiSaver?
What is the purpose of KiwiSaver?
When can or should you get the money?
Choosing the right scheme for you

Are you paying into KiwiSaver but are uncertain about how it actually works? Do you think you are in the right scheme? Where to you go to seek advice? Read on to find answers to some of these questions.

What is KiwiSaver?

KiwiSaver is an easy, affordable and voluntary savings scheme which was set up by the government in July 2007 to help New Zealanders save for their retirement years.

As employees you can choose to contribute 3%, 4%, 6%, 8% or 10% of your gross (before tax) wage or salary to a KiwiSaver scheme. Your employer in turn contributes with close to 3% of your gross salary.

Your contributions are invested on your behalf by a KiwiSaver provider of your choice. If you don’t choose a provider, Inland Revenue will assign you a default KiwiSaver fund.

A KiwiSaver scheme grows a number ways, automatic contributions, employer contributions, the investment returns from contributions being invested for you by your KiwiSaver provider, government contributions (even if you are not an employee, this can be as much as $521 each year) and any additional money you choose to put in. You can make voluntary contributions, lump sums or regular automatic payments at any time either directly to your KiwiSaver provider or through Inland Revenue.

Most employees contribute the minimum 3% and it is considered by many to be compulsory saving. With the money coming out each pay cycle it has become a way of life and it is not surprising that around a quarter of KiwiSaver members do not regularly check their account balance or know how much their KiwiSaver is worth.

What is the purpose of KiwiSaver?

KiwiSaver schemes have become increasingly popular as most of us recognise that when it comes time to retire the government pension and our own personal assets are not going to be enough for us to live comfortably. This realisation has been reinforced with the results of a recent survey carried out by the Financial Services Council which found that the majority of New Zealand adults, around 70%, think they will need to work past the retirement age in order to maintain their current lifestyle.

In addition, 65% of respondents, representing 2.5 million Kiwis, are worried they aren’t on track to have enough money or will be unable to afford where they want to live in retirement. This is scary, given people work hard for the majority of their lives for the reassurance that when they retire they will have the money to do what they want.

When can or should you get the money?

After you reach 65 years of age you are eligible to take all or some of your contributions out of your KiwiSaver scheme.

Just because you can take out it when you reach 65 does not mean that you should. You have options including leaving your money invested in as long as you like, rebalancing to better meet your needs, making regular withdrawals (note there could be a minimum amount and some fees may apply) or pulling it all out to either spend or invest elsewhere. If you choose to reinvest elsewhere look around as a KiwiSaver return of 10% is a lot better than putting into a bank which may offer only a 1% return.

At 65 you may still be working and if so you can keep your KiwiSaver scheme open and growing. At this point your employer can choose to continue to contribute, although they don’t have to as once you reach 65 you are then eligible for New Zealand Superannuation. The government will also stop its contributions to your KiwiSaver.

You can use KiwiSaver for buying your first home through a KiwiSaver HomeStart grant and home purchase withdrawal.

Early withdrawal from your KiwiSaver is an option under The KiwiSaver Act 2006 if you are suffering financial hardship or a serious illness but is not that easy to do as you will need to meet required policy criteria.

Before you make any decisions, talk to a financial adviser about your financial goals so you can work out the best course of action.

Choosing the right scheme for you

KiwiSaver providers offer a range of investment fund options to suit your needs, for example if you are just stating working or nearing retirement. These funds have different amounts of potential risk and return.

You can choose your fund from a KiwiSaver scheme provider and can switch at any time. You don’t have to stay with your employer’s chosen provider, or a default provider.

Things to consider when deciding on a scheme:

Your Risk profile

Each KiwiSaver scheme invests your money differently. If you choose a low-risk fund, most of your investments will go toward low-return, less-risky options such as bank deposits and fixed-interest investments such as bonds.

If you choose a very aggressive and high-risk fund type, most of your investment will go toward shares. Some of these funds may offer other investment vehicles such as futures and options.

For longer term savers, for example those just starting out in the workforce, you will have the time to take more risk, allow the market to go up and down (and back up again). Economic cycles tend to be round 7-10 years. If you have 3-4 decades before you retire, you will go through these ups and downs before you need to withdraw your KiwiSaver.

The level of risk you choose should be based on factors relevant to your situation.

The Fund type – this is similar to risk level.

The Te Ara Ahunga Ora Retirement Commission split the funds types into five categories; Cash, Defensive Conservative, Balanced, Growth and Aggressive.

Each one is slightly more ‘risky’ than the previous. High risk, means the potential for greater reward (remember nothing is guaranteed). An expert will advise you on the best fund for you.

In simple terms, higher risk funds are more likely to give you a higher return (grow your KiwiSaver faster), but there is a chance that they will also decline during those economic cycles. The low risk funds will grow your retirement nest-egg the slowest, however, their ‘volatility’ during the cycle should be less dramatic.

Active versus Passive

There are pros and cons for both types of approaches and an expert will guide you through this.

In recent times the passive approach has done well, because the market over the last 10+ years has gone up, which means every fund has done well. The downside of passive funds is there is not any downside mitigation, or protection from market losses.

The active approach is more selective on where the investments are made, they can move faster and be more nimble to market changes. There is also flexibility to deploy other tactics to minimise any losses, for instance, some providers will use options to minimise or in some cases, gain from market losses.

First Home buyer?

Are you planning to use KiwiSaver for your first home grant? If so talk to an expert.

The Fees

Not all fees are the same and when deciding on the KiwiSaver scheme best suited for you, the providers’ fee structures needs to be considered.

There is a big drive from some of the better known providers to lower fees and promote it as being the key to a good KiwiSaver scheme. However, if you take a more rational approach higher fees are okay if you are getting better performance from your fund manager.

Fees should be charged based on the actual service provided and giving customers value for money.

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Get advice

Your retirement nest egg is important, especially after working all those years to build it up.

A report in 2016 highlighted that only in 1 in 1,000 people sought advice on their KiwiSaver scheme, this is an alarming statistic given the amount of money invested.

It is important to seek financial advice to guide you on what is right for you and your circumstances. After all, you wouldn’t build your own house if you were not a builder, pull out your own teeth if you were not a dentist or fix the brakes on your car if you were not a mechanic. Why leave your financial future to chance?

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#FinancialWellness
#Financial-Wellness-Is-Important
#EmployeeWellness
#MoneyWorkshops
#YourMoneyMatters
#SortYourDosh
#FinancialWellness
#MoneyWorries
#FinancialWellbeing
#GetAdvice
#EmployeeBenefits
#GroupCover

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 KiwiSaver Confusion first appeared on Bolster Risk Management - Simplifying financial risk, insurance and investments for you..

The 5 Pillars of Personal Finance

Dom Bish — Wed, 08 Dec 2021 01:21:40 +0000
https://bolsterriskmanagement.com/

The 5 Pillars of Personal Finance

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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?
Basic money management concepts
Cover against Risk
Build your retirement nest egg
Build Wealth
Get advice

1. Basic money management concepts
It might be easy to assume that people are just born with a wealth mindset. Yet on reading the self-help money management books, listening to the personal finance gurus, you get to realise that habits are the best predictor to wealth and prosperity. Often, small behaviours, repeated often, are enough to build up or tear down our stated aims.
By way of example: Buying the Rolls Royce products instead of the cheaper Toyota, that still serves the same function but will cost you five times the price. I use that example because it is highly recognisable, but the same could be said for the tin of beans (Heinz or store brand), milk (Mainland or store brand). Saving a couple of dollars on your supermarket each week, might seem trivial, but those positive behaviours stack on top of each other. This is taking a longer term view of your finances. Time and money can be for you or against you.
What do you want, really? Have you thought about your financial goals? I don’t mean your dreams, but the life you are looking to have for your future self, for your future family. How does that look? Are you working towards that, or are you actively walking away from it through the choices you are making today?
One of the simplest things that you can do, to start getting ahead, is to spend less than you earn. Simple maybe, but not always easy. I say this, and I know there will be some who read this and think I am stating the bleedin’ obvious, and I am. Yet look at the increasing household debt level that we have, not just mortgages, but credit cards, store cards and the like. Let’s not forget the latest money trap for people, buy-now-pay-later. You are using tomorrow’s money today. What happens when tomorrow comes along? Find a way to spend less than you earn. This is the bedrock of changing your money situation.
I am a squirrel with money. I have it in different accounts in different banks and institutions. I do this for two reasons. 1) so that each account has a purpose and 2) so that I don’t have a false sense of financial security. Let me explain. I have an account for debt payments, for everyday expenses, for enjoyable fun money and lastly for long term goals. I also have an emergency fund that I contribute to regularly. Each account has a purpose and cannot be used for a different purpose. The false financial security might come from thinking that I have more available to use right now than I really do. And surprisingly, because I know I have the basics covered, I get more financial security. That really helps my mental health and stamina about any money worries that could build up.
The last nugget in this section is compound interest. Understand that using tomorrow’s money today comes with a cost. That cost is interest. Understand the magic and pain of compound interest is essential for you to think about the future value of money and, more importantly, how it can help or hinder your financial goals. The savings that you get from money in the bank is using compound interest. The extra amounts that you get charged for credit cards, is tied to compound interest. It can work for you (with investments, KiwiSaver and savings), or work against you (with mortgages, credit cards and pay-day loans).

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2. Cover against Risk
Personal insurance is the foundation of personal wealth creation – in my opinion. Let’s work backwards for a moment. In retirement, there is a certain amount of money that would satisfy your needs. What ever that amounts is, there is a number that you will need to live comfortably.
For you to get to that number, you need to be working throughout your live, saving and investing as you go, over a period of 20, 30 or 40+ years.
What happens if you cannot work for one or two years because of accident or injury? In all likelihood, you will draw on the money that you have been saving for retirement. Meaning that you have far less for retirement. You now must work harder and faster to make up the significant shortfall, the money you’ve just spent on your recovery.
This is why people use personal insurance as part of their financial risk protection planning. Disability insurance (or the other insurance products) work to stop you haemorrhaging money, by paying to keep your financial life moving forward. It is a key part of their wealth creation plan, and it should be yours too.
The Bolster House, pictured below; insurance is the foundation, the walls are your income, your retirement sits on top as the roof. If the income stops the rest falls down. Your debts don’t get paid, the rent doesn’t get paid. You can’t feed the family, any savings are used, any investment properties are sold… which means that retirement plans are even harder to get to. The insurance protects your income, which in turn protects your retirement plans.
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. Personal insurance solves this.

3. Build your retirement nest egg
In New Zealand, this is quite easy with KiwiSaver. Essentially it is forced savings that are ring-fenced until retirement. This is the point. You are not meant to be able to access it, unless you are investing in your own home.
The minimum 3% contribution from you is probably not enough though. But it is a start. It all depends on where you start, how old you are and how much you have in KiwiSaver. Remember compound interest will work for you (or against you) given enough time. The more you tip into KiwiSaver, the greater your chances of having a better fund to use in retirement.
Remember too, that it is a long-term investment. Markets, and therefore your KiwiSaver balance, will go up and down. That is part and parcel of investing. Become emotionally dull towards your KiwiSaver balance. Let time and compound interest do their job, on your behalf.
4. Build Wealth
This section might not be for everyone, but if you have placed the previous blocks in place, then this becomes a logical next step. You might build wealth to pass it along to your children, or to leave for a charity or cause that you believe in. It might just be to allow you to retire earlier than your initial retirement plan had allowed. Maybe retiring early will allow you to spend your time helping other organisations that are dear to your personal values.
Understand that the time frames for investing are different from retirement investing. Knowing what you are building and investing for is crucial. Partly because it allows you to exit the investment once your goal has been achieved (or to know when to exit because the investment has turned bad).
The typical Kiwi investment is property. This is the tradition. That still holds great psychological power for a great many New Zealanders. But this has turned now, with a whole generation of people locked out of the property market due to the ongoing sky-high valuations. That said, there is also a new wave of low-cost entry platforms like Sharesies or HatchInvest where people can start investing with small amounts, learn and make mistakes, without losing fortunes. The caveat here is the same as elsewhere in this article. Do your research and take the time to learn. You don’t need to know everything to become smarter with money. Small steps repeated often will see you succeed more readily than taking “big bets on sure wins”.
5. Get Advice
Success is not built by individuals, there is always a support crew. Don’t wait to get advice for when you are a multi-millionaire. Get different types of advice for different parts of your personal finance journey.
It may be from your accountant, or from the online platforms (Spring.kiwi and Sorted.org) that provide financial education and learning support. Advice might be direct and specific to your circumstances, or general and informative. We provide a range of tools to help people, and you don’t need to be a client to use them. We also offer specific client advise. Find out more here. Understand that there is a difference between the two. Don’t be afraid to ask for help.
The finance industry in New Zealand has just gone through a major shake-up. In most cases we are more heavily regulated than your accountant or lawyer. There are certain things that we need to do, to make sure that we give you the best advice for your situation. If you are unsure of the types of advice, or what is on offer, perhaps start here, the Financial Services Council NZ.
Personal money management can sound daunting and difficult. It shouldn’t be. Take small bite-sized steps to improve your situation. Given enough time and effort, it can be staggering what you are able to achieve.
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#FinancialWellness
#Financial-Wellness-Is-Important
#EmployeeWellness
#MoneyWorkshops
#YourMoneyMatters
#SortYourDosh
#FinancialWellness
#MoneyWorries
#FinancialWellbeing
#GetAdvice
#EmployeeBenefits
#GroupCover

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 The 5 Pillars of Personal Finance 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

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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:

Life Insurance

Trauma (or critical conditions)

Total & Permanent Disability (TPD)

Income Replacement

Health & Medical

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..

MONEY: Buckets & Automation

Dom Bish — Mon, 02 Aug 2021 04:34:09 +0000
https://bolsterriskmanagement.com/

MONEY: BUCKETS & AUTOMATION

It is easy to think that good money management is all about numbers and spreadsheets. Honestly, that is only about 10% of the whole gig. The rest, yes all the rest, is made up with our behaviours and attitudes around money. How do I know? I’ve been there in the worst of times.
If you have been following me for a while, you’ll know that I really believe everyone can change their financial position. It may take a while and it may be hard work at times. But there are some key concepts that could change your life.
We know many people struggle with basic money behaviours. There are many books, articles and podcasts from many sources that can help you. Here are a few…
Common themes from the reading list below:
Split your income & automate what you can
Live within your means & save what you can
Get advice & set your money to work for you

Barefoot Investor – Scott Pape
The ‘Aussie guy next door’, yes, Australian, but close enough to home to make it relevant to the New Zealand market. The basic concepts are the same throughout other books and guides. Split up your money into separate amounts, create automatic transfers so that you don’t even have to think about it, then get on with living life. Small actions repeated consistently can create massive change (this is a central theme in personal finance).
Use ‘3 buckets’; Blow, Mojo and Grow
In the Blow account, split your after-tax income across a few accounts*.
·        60% for essential expenses
·        20% for additional debt repayments
·        10% for fun money (Splurge)
·        10% for long term goals (family holiday, car, new curtains)
[*if these percentages don’t work for, don’t worry, split your money in a way that works for you]
The Mojo bucket is a spare lump of money tucked away, that can be called on in an emergency. Some people talk about 3-6 months of expenses, Pape suggests starting with around $2,000 (if you can). It helps when the water heater starts leaking, or the car needs new tyres – those unexpected costs. You have a lump of money that takes the stress out of the situation.
Grow, is basically using your KiwiSaver, increasing your contributions and/or investing in low-cost index funds.

Automatic Millionaire – David Bach
We meet ‘Jim and Sue’ who teach the English financial adviser a thing or two.
You don’t need have to earn a lot of money to be rich
You don’t need discipline
You don’t need to be your own boss
You can build a fortune on a few dollars a day
The rich get rich because they pay themselves first
Above, you need to automate as much as you can
A key theme for Jim and Sue is “If we didn’t have enough cash to buy something, we didn’t buy it”.
And the ‘automatic’ bit…? If you don’t have to think about your actions, you won’t change or stop what you are doing ‘for something better’. So remove the temptation – “protect yourself from yourself”. Automate your spending so that you forget that you are even doing it. This is key.

Focal Point – Brian Tracy
Not usually known for his money advice, Brian is prolific writer and teacher of small business success, distilling complex ideas into easy-to-digest concepts. Focal Point is a case in point. Tracy only devotes 13 pages to money with his opening sentence starting with this: “Money is like food. When you have enough of it you don’t think about it at all. But when you are deprived of it for any period of time, you think of nothing else.”
Examine every purchase before you make it. Delay it if you can. Put off making the purchase, perhaps you will change your mind and forego the expense entirely
Set clear goals and targets for the amount you intend to earn and keep. Measure the results against these – ‘what gets measured gets done’
Look for ways to reduce your monthly expenditure, save the money instead. Cut out as many non-essential expenses as possible.
Take all opportunities to increase your value and earning ability. Upgrade your knowledge and skills. Do more, be more.

The Richest Man in Babylon – George S. Clason
This small book sets out a nice narrative showing people how to build and protect wealth. There are two overlapping themes in the book “Seven Cures for a Lean Purse” and “Five Laws of Gold’. It is an old classic by George S. Clason from 1926 that helps to cement the idea that wealth must be grown from the inside first. We need to develop ourselves so that we become ‘worthy’ of the wealth we ultimately receive. The two themes can be summarised as below.
Pay yourself first – i.e. save at least 10% of your income.
Live within your means.
Put your money to work.
Keep your money safe.
Insure your future income.
Improve your skills to earn more.

Cashflow Quadrant – Robert Kyosaki
This book changed my life. Two decades ago, I didn’t know anything about money until I read this book.
The flow of money, as an employee versus an investor (who controls the flow?)
How to read a financial statement
Pay your self first, before everyone takes their cut (notice a common theme here?)
Change your thinking (rich dad/poor dad) to change your behaviours

Your Money Matters – Dominic Bish
Recently I wrote a short book and developed a 7-Day online course “Your Money Matters”.
Understand General Concepts
Automate Behaviours
Protect against Risk
Find Value in retirement
Build Wealth
Get Advice
Take Action
There are plenty of common themes and concepts with the previous books. You need to understand the basics of money, even just some of the language around money, to give you a fighting chance. Behaviours are crucial to how we do everything. It stands to reason that behaviours impact how we deal with money. One solution – automate as much as possible so that our behaviours do not sabotage our efforts.
Protect against risk is the same as ‘keeping your money safe’. Pape talks about protecting your income earning ability. Without your income life gets tough. You can get affordable insurance for that.
Retirement planning and wealth creation may appear to be the same thing, and they might be for you. But, they may also have different timeframes, different requirements and therefore require different instruments and methodologies. Essentially they require slightly different investments plans.
Getting advice is crucial. You don’t need to wait until you have $1m before you get advice. If you get advice on which phone to buy, or what Burger Fuel burger is best, why not get advice on your money? If you go to the doctor because you know you need some help, why not get some financial help from a professional. Would you lay a brick wall if you’re not a brick layer? Would you pull your own teeth if you’re not a dentist?
Take action – this is where the rubber meets the road. You will need to do something. Start with an idea of how things might be better. Then use some of the concepts above to help your journey. You could even follow some of the links and read the books mentioned. Change your thinking and you change your life – trust me, I know this first-hand.

There are other authors, but for brevity I cannot show all of them, Mary Holm and Martin Hawes are homegrown Kiwis for instance, and have a range of good books covering all things personal money.
What ever you do, if you are not where you want to be financially, you are not alone. If nothing else, make a start, do something. Ask for help; chat with me or another professional. Look through a book or article, do a course, listen to a podcast.
It might change your life.

If reading is not your thing...

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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How Distressing is Financial Distress?

Dom Bish — Mon, 05 Oct 2020 02:42:05 +0000
https://bolsterriskmanagement.com/

Mental health awareness week was here in NZ recently. Money stress effects 22% of people every day. A further 25% worry about money weekly. Anxiety comes from looking at the future and being uncertain, of not being able to clearly see the way ahead. It is easier to ‘stick the head in the ground’ and do nothing. Do you worry about money? If you do, you are like 61% of New Zealanders who worry about it with different frequencies, but at least monthly.
Key points:
What is distressing?
What the numbers say
What can be done?

Anger, frustration, feeling lonely, unsure where to turn. These are defensive mechanisms against anxiety.
I have a job, but for how much longer?
Will it be my head that rolls, during the next corporate shake-down?
Can I pay the mortgage this week?
Will my card be accepted at the supermarket or will it be declined?
Can I put fuel in the tank?

It all becomes noise that makes it hard to think straight. Deep down, most of us know that there are better ways of managing money. At best we are told to ‘budget’ but what does that even mean? Does it even work? Maybe only for 5% of people who are used to ‘clipping coupons’. How do we survive let alone think about thriving? Where do we turn to for help?
Suicide rates in NZ are twice that for road deaths. Think on that for a moment. For every person that dies in a road incident, 2 have lost all hope and have taken their own lives. Some of those will have money issues that contribute to their feeling of despair.
What the numbers say
I am in finance; it stands to reason that I like numbers. For me, numbers help to tell a story.
There is a strong relationship between money and wellbeing
25% of people are majorly influenced by financial wellbeing
Financial issues impact mental health
19.8% of people are adversely affected by money issues
Financial issues impact relationships
15.9% of people’s relationships are adversely affect by money
People worry frequently about money
61% of people worry about money at least once a month
This is from research data that was collected in the middle of this year, 2020 as the COVID lock-down was in full swing in NZ. This is real-time, as real as we can have it. Times are tough for many people. Thinking about money matters, personal finance and how to sort your dosh, is a big part of it.
What can be done?
The first thing is talk to someone. Don’t try to be a hero and shoulder it all on your own. This is the same advice for people suffering stress, mental and/or emotional turmoil. A problem shared is a problem halved. Ok, maybe not halved as the saying goes, but speaking with someone can make you feel a little better. And feeling better is a start. Noting is forever, there is always a way forward. Below is a quick list that might help. It is not definitive, but it is a start.
Be money smart – you don’t need to buy premium
Review your insurance – test the market and get a deal
Automate your cash – pay yourself first (before your bills and everything else takes, takes, takes)
Take it easy – Simple and easy steps can make the world of difference
If all that feels underwhelming for your situation, there are a range of services to help you. It might be simple like www.sorted.org or you might need something with a stronger flavour, perhaps try www.lifeline.org.nz/ . You don’t need to feel financial distress on your own. Tough times can be lonely enough without shouldering that burden too.

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A Recession Is The Best Time To Sort Your Money

Dom Bish — Tue, 28 Jul 2020 17:54:39 +0000
https://bolsterriskmanagement.com/

What?
In a recession nearly everyone is worried about money. We know that 62% of kiwis worry about money at least once a month. In fact, 23% worry about money daily. In normal times! So, if you are in a room with 10 people, six of them have had the cold sweats in the past month, worrying about paying debt, buying food, paying rent or covering the kid’s sporting activities.
So why is now the right time? A ‘‘down-turn” focuses people’s attention. It forces us all to look at how we are spending and what we are spending on.
KEY TAKEAWAYS
Why now is a good time for you
Is replacing your insurance with a cheaper policy a good idea?
Is now the time to invest your cash?
Tips to help out

We know we should brush our teeth every day, not eat sugar, not eat fatty fast-foods and exercise regularly, but how often do you really do all these things? Like our money. We may think that we have a handle on our spending, but we get a coffee or soft drink every day. We up our Spotify subscription to premium to cut out those ads. Then we hear endless messages in the media about impending financial doom and we realise we should look at our own habits.
We start looking at how and why we spend the way we do. We then start to prioritise what is actually important to us and our families. Bingo. We have a defining moment where we realise that we don’t need Heinz beans we can have the store label. There’s a smart money choice. We rationalise our “treat” coffees to one a week, saving ourselves $20 a week. That’s $80 a month or $960 in savings a year.
Is replacing your policy with cheaper insurance a good idea?
This depends on your situation. Personal insurance is all about reducing financial risk. If you have insurance, you have it to protect you from loss of income or to cover your debt if you are unable to work due to illness, injury or death. If you reduce your premiums you may end up reducing your cover. However, is now a good time to ‘test the market’ and get a second opinion on the policy that you have? Absolutely. Now is the time to check that the policy you have in place is fit for purpose.
Does your policy match your current circumstances and budget? Just because when you last saw your broker 4-5 years ago everything was correct doesn’t mean that the situation is the same now. If anything, with everything that has been happening lately, now is exactly the time to review your cover.
That is an assumption of course. What if you don’t have life insurance, or any protection for your family? Now is the time. Why? If you’ve read this far, you are looking at your money situation right now. You want to make better decisions about where your money is going.
Should I invest my cash or leave it in the bank?
Start by looking at your own situation and determining what your goals are. The problem with leaving money in the bank is that you will get about 0.5%-1.5% of interest on a savings account. Per year. If you are lucky, by the time inflation eats away at that, you will break even. You may as well stick it under your mattress (no don’t do that!). There are much better vehicles, managed funds or “unlocked” KiwiSaver funds that provide safe investments with better returns. The benefit of these types of investments, is that they are relatively liquid (meaning that you can get to your money), unlike KiwiSaver which is locked up until retirement.
In a down economy, investments are usually cheaper, so ‘now’ can work better for some people who have the cash to make that choice. At the very least, now is the time to get into KiwiSaver if you haven’t already. The type of fund you’re in matters, so ask your adviser. If you don’t know who your adviser is, find another adviser. They get paid fees to look after you. If they are not keeping in contact with you, choose with your feet and walk elsewhere.
Some personal money tips
Don’t take unnecessary risks if you can avoid it. Watch your spending and ask yourself if you really need that next new shiny object. Keep a small fund that you can use for a rainy day. Most households in NZ would struggle if their income stopped tomorrow. Around 37% would struggle after just one month.
Don’t go guarantor on someone else’s loan without careful due diligence. Just because you’ve known cousin Joe for 20 years, doesn’t mean that now is the right time to take a risk. If you’re an employee, take the time to upskill and train. Don’t leave your employer with all the control over your future.
Budgeting. What a nasty word! However, there are some great free tools, such as sorted.org.nz and budgeting services (just Google “budgeting services” and your area) to help you get control of your spending. Control and budgeting are not the same thing. Budgeting normally needs willpower. We know that all of us struggle with having 100% willpower 100% of the time – learn a different strategy.
If you’re worried about managing money in a recession, now is probably a good time to consider chat with a financial adviser. Wherever you are at, whatever your financial situation, there is always a source of help. Many of us were not born little Warren Buffets, nor did many of us have basic money management classes at school. A financial adviser will be able to help.

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