Aussie Finance Blog

Australian personal finance news, tips and advices.

Comparing car insurance

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What should you look for when comparing policies?

Cars are a big expense, especially when it comes to insurance. Whether you’re buying insurance for the first time or your policy is due for renewal, you should always start by comparing your options. But where to start? Here are five things you should consider when comparing your car insurance options.

The cost

Cost is the first point of comparison for people when comparing policies because it’s the simplest way to compare, ie policy A costs more/less than policy B. ... (read more)

Juggling your changing health needs on a budget

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The start of Autumn every year is a good reminder to make sure you’re on the right private health insurance plan. Why Autumn though?

On 1 April, premiums for health insurance rise by an average of 4.84%. So if you don’t take the time review your policy, not only could you be worse off financially but you could end up with the wrong level of cover – something that could cost you much more in the long run.

Luckily, it doesn’t take long to make sure you’ve got the right health insurance plan in place, and to ensure you’re getting as much as value for money as possible. Laura Crowden, spokesperson for iSelect, has a few tips to help you on your way:

  • Play the offset game. Many people who shop around ahead of April 1 find that they not only offset the premium rise by getting a better value with a new plan or provider but even save money. With many providers in the market, some are offering attractive deals in a bid to win your business. Just make sure you’re not sacrificing coverage for savings.
  • Make sure your policy suits your life stage and medical needs, especially if they are regularly changing. A careful review of your policy might reveal that you’re covered for the birth of a child, which is perfect if you’re trying for a baby but is a needless cost if you’re not.

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    Do I have a Junk Policy?

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    Compensation for this post was provided by Choosewell. 

    The private health insurance industry has found itself in a bit of a pickle after customer advocacy group Choice recently ousted several major providers as proponents of ‘junk’ health insurance policies. Arguing that these policies represent a complete waste of money for consumers, Choice has demanded attention from the Federal Government.

    It’s unclear if the government can help, as it seems fairly evident that the government itself set the scene for junk policies to be created when it introduced policies and tax incentives to reduce the supposed strain on Medicare. By shifting the focus of health insurance away from support and directing it towards tax breaks, what is the true reason for getting private health cover?

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    What is a ‘junk’ policy?

    Private health insurance has a many different products and packages to suit the variety of consumer in Australia. Some of these policies don’t actually represent the value that consumers think they’re getting – these are junk policies. Many basic packages exist only to attract consumers with tax benefits, others seemingly don’t include expected services. Effectively, they provide little to no real benefit.

     

    Is tax part of the problem?

    Many younger Australians – and this writer is no exception – have flocked to inexpensive Basic Hospital cover packages through private health providers in order to save money at tax time. The Lifetime Health Scheme and Medicare Levy Surcharge encourage taxpayers on higher incomes over the age of 31 to have private health insurance. This situation has effectively encouraged private health providers to develop packages to meet the demand for tax savings, not effective health cover.

     

    What about Medicare?

    Medicare is inadvertently part of the problem. Given that all Australians can get free, world-class health cover through Medicare means that anyone who realises they are not covered by their junk policy can still be treated by the public system. The result is that a consumer has to join a waiting list (typically 30 to 60 days) to receive that treatment. Arguably they feel betrayed and cheated too, but sadly there’s no insurance for that.

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    How to avoid junk policies

    Clearly it’s an issue of why have health insurance: to save on tax or to be supported by slightly higher quality health cover? It’s important for all consumers to know why they are choosing to employ a service like health insurance. If it’s to save money on tax, then it doesn’t really matter what your insurance does, but if you are taking out health insurance because you want or need the support and peace of mind, then be sure to compare your options very seriously.

    Choosewell, a free health insurance comparison service, can provide side-by-side policy review with a team of Health Insurance Advisors standing by to answer any questions. This is the best way to find a package that meets your needs while having an expert on standby to answer any questions. Contact Choosewell on 1300 421 154 to get out of your junk policy.

    What Does Home Contents Insurance Cover?

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    Home contents insurance gives the home owner or renter peace of mind by covering the financial cost of replacing or repairing possessions. Almost everything you own can be covered by contents insurance, including furnishings, computers, white goods, electrical appliances, equipment, toys and even collections such as stamps or coins.

    As we accumulate possessions it becomes imperative to protect our investment with insurance. Home contents insurance covers items belonging to every family member, and can even include items belonging to visiting friends as long as their name is also listed on the insurance policy. Items that are not covered include permanent building attachments. These will need to be part of a separate ‘home insurance’ policy. Many people combine home and contents insurance to cover both the house and possessions.

    Renters need to be aware that their personal belongings are not included in the landlord’s insurance cover.

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    Types of contents insurance

    You may choose to insure all your possessions, or just some of the more valuable items, as more cover will result in higher premiums. There are two general types of contents insurance cover: Replacement Value or New for Old.

  • Replacement Value: This cover will take into consideration the value of your possessions according to their age, general state of deterioration, and other factors determining their value. Your payment will reflect the current value.
  • New for Old: This cover enables you to purchase a brand new item to replace the stolen or damaged one, regardless of age or condition. New for Old contents cover incurs a higher premium due to added expenses for the insurer in the case of a claim.

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    Life Insurance Explained Simply

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    Life Insurance is one of the soundest financial investments you can make. If you leave dependants behind, your policy will ensure they are financially secure and able to meet ongoing expenses.

    Everyone is ultimately vulnerable to health complications and accidents, so it’s hard to understand why anyone with available finances would remain uninsured. It’s true that nobody wants to contemplate death for themselves or their loved ones, and when things are going along nicely, life insurance is easily forgotten. However, there’s no denying that life insurance cover could prove invaluable in a time of need.

    There are several types of life insurance available, and here are a few ideas that will assist in deciding which policy is right for you.

     

    Term Insurance

    This is a common life insurance policy that pays out if the policyholder dies during the specified term of the policy. You can choose how long you wish to be insured, with policies generally set for a period between 10 to 25 years. The agreed payment, or ‘sum assured’ is agreed upon when you take out the policy, but remember to read the fine print as some policies don’t pay out if you die soon after taking out cover. If the set policy time-frame expires before you die, there is no pay out. There are several term insurance variations:

  • Level term insurance: The ‘sum assured’ amount of cover remains the same for the duration of the policy.
  • Decreasing term insurance: Your pay-out will reduce over time, usually in keeping with reduced mortgage repayments or other debts.
  • Increasing term insurance: Your pay-out increases over time to keep pace with the cost of living, and is usually pegged at 5%, or in line with inflation.
  • Guaranteed premiums: Your payments will remain the same over time, assisting you with budgeting.
  • Reviewable premiums: This can be less expensive initially, but is subject to review, with the potential for payment increases over time.

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    Home Insurance during the Settlement Period

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    Many buyers are confused about their need for home insurance between the time the contract is signed and the final settlement prior to moving in. Here are some reasons for the confusion and the right steps to take regarding insurance.

    Although there are variations in property law for different Australian states, the terms of contract usually transfer insurance risks from seller to buyer as soon as the contract is signed. The time between signing the contract and final settlement is most commonly between four to six weeks, with many people unsure of their need for insurance during this period. A legally binding contract also includes fine print, and every word should be fully understood before entering into what, for most people, is their greatest financial investment.

     

    What is the seller’s responsibility?

    The seller has an obligation to take care of the property between the sale and settlement dates, ensuring there is no property deterioration during this time. Even if the property becomes the buyer’s risk prior to settlement, it’s a good idea to remain insured until settlement. The property would otherwise be uninsured if the buyer doesn’t insure for the sale/settlement period.

     

    What steps should the buyer take?

    The buyer should take out an insurance cover note as soon as the contract is signed. In some cases the buyer may not immediately be notified at the time the seller counter-signs, meaning the investment could sit uninsured for a period of time. Some insurance companies offer free insurance for the duration between signing the contract and settlement date, so it can pay dividends to investigate various insurance company policies.

     

    Is the insurance policy different for vacant land?

    If the land is vacant at the time of purchase, a buyer can use public liability insurance during the construction phase. As soon as building finishes, it’s time to invest in a comprehensive insurance policy covering both the land and building, including improvements such as carpets, fixtures and furniture.

     

    My unit is overseen by a body corporate. What does that mean?

    The body corporate insurance responsibility is for common property, including common walls and other building or property assets. The buyer should insure for unit contents and public liability.

    In the case where the buyer is uncertain, an insurance premium covering the building and contents will safeguard against any unforeseen events. Once it’s determined that the body corporate has appropriate building insurance, the buyer can cancel any unneccessary building insurance.

     

    What is landlords insurance

    Buyers should understand the difference between being an owner-occupier and being a landlord. If your property is going to be rented out following settlement you will require a policy suited to your needs. A standard building and contents insurance policy will not cover every scenario. Risks include:

    • damage caused by tenants
    • theft of household paraphernalia
    • non-payment of rent
    • legal expenses incurred in settling a claim against a tenant

    In every case, it’s in the buyers best interest to investigate all insurance options, carefully study the insurance policy, and take out appropriate insurance to cover any situation that could affect you as the home or property owner.

    Income Protection Insurance in Super

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    Income Protection Insurance is a policy that provides payments in place of your regular income in the event of an injury or illness, especially if you are away from work for an extended period of time. The amount of monthly benefit received is determined by your policy choice, and can be up to 75% of your usual income. Policy options are designed to suit individual requirements and are generally structured for benefit periods spanning 2 years, 5 years, or until age 65 or 70.

    Reasonable Benefit Limits (RBLs) have been removed from superannuation since 2007, resulting in a dramatic uptake of income protection insurance premiums paid through super. There are several advantages in using superannuation to fund an insurance policy:

    Price: Super funds often purchase policies in bulk, passing on the savings to customers.

    Tax: Premiums are paid directly from your super account, instead of from after tax income, providing potential tax advantages.

    Wage: Even if money is tight, cover is always available for you and your family.

    Deductions: Premiums are automatically deducted, ensuring peace of mind.

     

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    How can the money be used?

    As the name suggests, income protection insurance enables you to support yourself and your loved ones without sacrificing your standard of living. The money can be used for everyday needs as well as long-term commitments. Everything from food, education expenses, mortgage payments and ongoing debts can be covered.

    Income protection insurance provides security for your entire family in the event you suffer unforeseen illness or injury; an especially important consideration if you are self-employed. Income protection insurance within super doesn’t affect day-to-day cash flow, facilitating quality of life while fulfilling ongoing financial obligations.

     

    How soon will I be paid?

    This will be determined by you as part of the policy you choose. This “waiting period” is the length of time before your payments begin. For example, if you are an employee with plenty of sick leave or annual leave saved up you may choose to commence income protection payments after first utilising your leave days. Premiums would dramatically increase if people claimed for every minor ailment lasting a day or two, therefore a manageable waiting period is offered as part of your insurance design.

    In other words, a longer waiting period results in lower premiums. Insurance through super can be a cost-effective option facilitating lower premiums, a cover that suits your needs and the flexibility to alter the policy if your circumstances change.

     

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    How do I calculate Income Insurance premiums?

    Your premiums will be calculated according to your desired cover along with your lifestyle choices. Factors considered include:

  • Waiting Period. This refers to how long you wait until benefits accrue. Waiting periods can range anywhere from 14 days to 720 days. A shorter waiting period results in more expensive premiums.
  • Benefit Period. This is the length of time you select for receiving payments. The benefit period can be as little as 2 years, or for the duration of your working life up to retirement age of 65 or 70. Higher premiums are paid for longer benefit periods.
  • Policy Choices: Insurance companies can provide basic or premium cover. Super income protection insurance is also increasingly popular.
  • Occupation: Increased premiums are paid if your occupation involves a greater degree of risk of accident or injury.
  • Smoking Status: As there are numerous health risks involved with smoking, premiums may be higher.
  • Age: Premiums get higher as you age due to increased risk factors for illness or injury.
  • Income: Higher income results in increased premiums due to greater income protection payments in event of accident or illness.
  • Gender: Research shows that women are at a higher risk of injury or illness than men, with premiums reflecting the comparative data.
  • Hobbies: Dangerous pastimes and hobbies such as motorbike racing or base jumping may result in higher premiums.
  • The Premium Type: Stepped and Level premiums are calculated differently.

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    Health Insurance – Who Needs It?

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    It’s something you hear about often, drifting in and out of conversations, and you probably know you should take an interest, but as usual you turn the other way and talk about something else. After all, who really needs health insurance? Maybe you think you don’t need it and everything is fine. Possibly you feel it’s an expense you would rather not make, but can you really afford to do without health insurance?

    The reality is that health insurance is there for a time when something goes wrong. You are more than likely to insure your house or car, so why not insure your most important possession – your own health? It’s a risky business to go about your daily routine without being insured. Here are some reasons why you really should consider health insurance.

    The uncertainties of life

    Everyone goes through ups and downs in life, and it makes sense to be prepared for any eventuality. We can suffer misfortune any time, and although you may feel bullet-proof when young and healthy, disaster could be lurking around the corner. If an unforeseen occurrence leaves you bedridden for a time due to an accident or health issue, you will really appreciate someone covering the costs. Health insurance offers great peace of mind in knowing you are not going through life unprepared.

    The financial safety net

    You may have savings and reasonable earning power providing a cushion in case of emergency. On the other hand, hospital and surgery bills can chew up money almost as fast as it is printed, and the nest egg you have been building could certainly go toward something more interesting than a vacation in a sterile hospital ward. It costs thousands of dollars per day to stay in a hospital, and the price tag on a broken leg is around $7,000. Health insurance will offset these costs, and protect you from suffering the shock of receiving an enormous bill when you discover just how much these unforeseen circumstances can cost.

    Smart health

    The reality is, if you are not covered by health insurance, you probably don’t understand or appreciate the value of your own good health. An interest in health insurance will also stimulate a desire to look after yourself, possibly with a new exercise program or better diet. Smart people are interested in healthy living options. We all know someone who took a turn for the worse health-wise, but somehow we never think in can happen to us. It’s one thing to be proud of your health, but another to be reckless with it.

    Health insurance is not governed by age, present health status, or work. Illness or injury can strike anyone when they least expect it. Healthy living involves a two-pronged defence. On one hand, you can take all sensible measures to maintain good health, and on the other hand health insurance will guarantee you are covered if and when the unexpected happens. Put your mind and body at ease by looking into health insurance options that suit your lifestyle.

    Read more about insurance related tips here.

    Health Insurance Considerations

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    You may have realised you need health insurance. Here are some strategies to make sure you get the best deal.

  • Take the time to become familiar with the rules governing the health insurance plan you choose, and then follow those rules. The rules may be related to pre-authorisation or associated matters. If you ignore the rules related to your plan there is a chance that your coverage will not be forthcoming when you need it. Never make uneducated assumptions. Even if you are reluctant to expose your lack of understanding, speaking to your health insurance company representative could save you thousands of dollars.
  • You may not require every coverage feature of your chosen health insurance plan. For example, mental health services or maternity features are specific to particular segments of society. Some health insurance companies can offer a policy for basic cover that may be more specific to your needs. Although you will be covered for fewer eventualities, it will be a less expensive health plan.
  • Some health insurance plans contain spousal benefits. If you and your spouse are covered by health insurance, it’s worth checking the policies to determine your cover. If you are both covered by one of the policies, the other policy can be terminated, immediately cutting your health insurance premiums in half.
  • If you are familiar with your health insurance plan you will be better prepared in case of emergency. Certain hospitals and doctors may be included in your network, and by knowing who and where they are you will save time and money when the need arises. Keep this information where it can be readily retrieved.
  • By cutting down expenses on medicines or drugs you will be doing your health insurance costs a favour. Methods can be as simple as requesting free samples from your doctor or using generic drugs. There are many reduced cost medications available. Investigate if you are eligible for programs that are available, especially if you are a low income earner.
  • A simple method of becoming a desirable health insurance customer is to give up bad habits. For example, smokers pay higher premiums, and if you have given up for several years you will qualify for a better health insurance rate.
  • Getting fit and healthy is a good idea. Obese people pay a higher health insurance premium than smokers, alcoholics and the elderly. Healthy people have greater energy and vitality, less stress, and often more money for enjoying life’s healthy pleasures.

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    The Risk of Being Under-insured

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    Construction costs have increased significantly since the carbon tax was introduced, with additional expenses filtering through the building sector from top to bottom. Soft economic conditions have also affected small construction companies, with many owners under-insuring their business against potential losses. A lot of businesses are under-insured, with few owners understanding the ramifications until they make a claim.

    For example, a construction company owning a building valued at $3 million but insured for only $1.5 million, will only be able to recover half of the loss when making a claim. If fire or flood causes $500,000 damage the insurance company will provide $250,00, with the business owner expected to make up the shortfall. Many businesses don’t even realise they are not sufficiently covered.

    According to Allan Manning, managing director of LMI Group:

    “I get these two looks when I explain it to people: First, a look of understanding, then a look of horror, because they realise how much it is going to hurt them.”

    Insurance companies have no obligation to replace assets that are under-insured, and recommend that customers check regularly to ensure adequate coverage. Being under-insured simply means that the amount of insurance coverage is less than replacement value or market value. By revisiting insurance policies every year, or whenever the business expands, a business owner can make certain the value of the business is reflected by adequate insurance cover.

    Almost half of all Australian businesses have kept their insurance cover at the same rate during the past three years, suggesting that they have not increased cover to reflect rising costs, stock increases or expansion. Increased energy costs, including waste management and manufacturing are in part the result of the carbon tax, and the under-insurance scenario will only be exacerbated for many companies.

    The sluggish economy has also resulted in a lot of businesses getting creative in tightening up their expenses. Unfortunately, saving money in the short term by taking out a lower insurance premium is risky, and can result in small businesses folding in the event of an unforeseen insurance event.

    For many small business owners, their company is their dedicated income source. The business is often a person’s sole investment and also their superannuation fund. Unless business owners take the opportunity to invest in insurance cover that reflects the value of their holdings, the price in times of need may be more than the business can bear.

    The cost of insurance is something that needs to be factored in prior to starting a business. It is also something that requires revisiting on a regular basis as part of long-term business strategy.