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Who has adequate personal insurance?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Andrew Newman, 13th Jun, 2009.

  1. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi All

    I thought I would put forward this question.

    By personal insurance, I mean life, TPD, trauma and income protection cover.

    It is a well known fact that Australian's have inadequate personal insurance.

    BUT why is this the case - perhaps it's too difficult, too expensive, I'll be right without it, I don't need it or I have some in my super?

    What do you think?

    I look forward to some constructive discussion.

    Cheers
     
  2. Billv

    Billv Getting there

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    For me it's a balance between need and cost.
    I've always had to choose an amount which would be sufficient for myself or my family to get back on our feet.
     
  3. Stevenk

    Stevenk New Member

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    Hi Andrew (& Bill),
    I have two young kids and my wife does not work so having income protection and D&TPD is essential for my family's future should something happen to me.
    I have taken out D&TPD and income protection through my superannuation. This way it is relatively cheap and you don't actually have to fork out any cash - it just means I get a little less when I retire in about 25 years time.
    I had trauma insurance a few years ago but dropped this as it was expensive. I'm waiting for my superannuation fund to offer this insurance product.
    Cheers
    Steven
     
  4. Billv

    Billv Getting there

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    Same here and although I've now got my own SMSF I've kept the insurance with my old super fund because it was considerably cheaper.
    I haven't looked at the fine print though, there must be a reason for the price difference.
     
  5. Chris C

    Chris C Well-Known Member

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    The fact we live in a welfare state where the government picks up the tab I imagine would make a lot of people feel "insured"...
     
  6. AsxBroker

    AsxBroker Well-Known Member

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    Hi BV,

    Like you said, it's important to have the right amount of cover, yes it would be nice to have $10m of life, tpd and trauma but that would cost a huge amount...We take out the amount of cover which we need.

    I'm surprised you couldn't have found a cheaper insurance policy?
    Price differences would be because they can be...why does one car have a different price to another?

    Unfortunately for Steve, I don't think trauma cover will ever be inside superannuation as it doesn't meet a condition of release. So having a trauma policy inside a super fund, the policy will get paid to the super fund though the beneficiary won't be able to get the funds until meeting a condition of release :( (Which generally isn't having a trauma).

    As Andrew said, most people believe it'll be ok and leave it too late to get covered.

    Level premiums are certainly more attractive proposition for the long term as the premium is the same each year compared to stepped premiums which increase each year with age.

    Cheers,

    Dan

    PS This is general information, seek professional advice before making an insurance decision.
     
  7. Billv

    Billv Getting there

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    Chris

    Why do you think we live in a welfare state?
    Australia is no longer the generous country it used to be.

    What the state provides today is the absolutely bare minimum so that people don't starve.

    Sickness and unemployment benefits are below poverty line and are also means tested so I don't think a lot of people would be viewing them as a substitute for income protection or life insurance.

    cheers
     
  8. joanmc

    joanmc Well-Known Member

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    OMG I don't believe this BUT I actually agree with Chris C!!!:eek:

    I think many people think the government will look after them and so don't bother. I know members of my extended family with no super or investments as "I'll get the pension". That and the "she'll be right " attitude of it won't happen to me.

    Also I think insurance underwriters cause a lot of people to be underinsured. I am very lucky that I bought a good policy quite cheaply about 15 years ago. I got very sick about 12 years ago and even though I am all better now I am apparently a "sure thing" to eventually die and collect!!! I hadn't realised that I wasn't a sure thing to die before hand :rolleyes:
    So I cannot update my policy as I will be loaded in my premiums. I can only take the yearly CPI increase they offer me.
     
  9. Chris C

    Chris C Well-Known Member

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    Wikipedia's definition of Welfare State:
    So from my perspective "welfare state" is synonymous with the word "insurance" I particularly like the reference of "social safety net" because isn't that what insurance is, a safety net?


    I don't think, I know we live in a welfare state by definition. Anyone who thinks times are tough in our soceiety clearly hasn't looked back through history much... the last 30 - 50 years has been human society's pinnacle in regards to the application of social welfare and equality (that's not to say things are perfect).


    You are using the terms "used to be" very loosely, because go back 100 years and you could have asked someone "what's welfare" and they would have looked at you sideways.

    Just because the last 10 - 20 years have been a certain way doesn't make it "the norm" and I think because most people don't spend much time studying history at length it leaves us all to form our own norms based on only very recent events. I think this post I made awhile back gets the heart of the point:

    http://www.invested.com.au/85/heuristics-cause-financial-crisis-36136/

    I don't know what you think of Niall Fergusson, but he is running a great series on the ABC at the moment called The Ascent of Money after the first two episodes I went ahead and watched the entire series online. This week's episode is actually about insurance, and it actually suggests the reason why so many countries adopted a welfare state model was to provide insurance for the population to help stimulate the economy by letting people know they didn't have to always be saving for a rainy day because the government will bail them out in tough times, meaning entrepreneurs can get out there in the economy and take some risks.

    Unfortunately today's society thinks welfare is a long standing norm and their right, and in many countries around the world the costs of welfare is literally sending countries bankrupt.


    The Ascent of Money Part 4


    Actually the state hands out hundreds of dollars to individuals. If the state just wanted to make sure they didn't starve it hand out loaves of bread.

    :cool:

    That's the other thing that peeves me no end. Just because I have the means to support myself shouldn't exclude me from benefitting when I lose my job or I get sick. We talk about a society of equality but there is no equality in taxation or receipt of benefits!
     
    Last edited by a moderator: 17th Sep, 2016
  10. Nigel Ward

    Nigel Ward Team InvestEd

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    I have an adequate level and I think ensuring this should actually be the #1 priority for all financial planners with their clients.

    Unless you are a deca-millionaire plus it is not possible to self-insure for most things in my view.

    Cheers
    N
     
  11. chris_qld

    chris_qld Active Member

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    I have Trauma and disability insurance included in my morgage insurance. However I haven't got proper income protection insurance at the moment. So I need to sort it out before the end of financial year.

    At the moment I can't decide whether I should go with my Super (which is First State Super) or I should use another insurance company. I noted that the costs would be lower if I go with my super fund. However, this will reduce my super. We all know that income protection insurance is tax deductable.

    If I use an insurance company then I need to find out which insurance companies have good or bad reputation. So far I haven't got much information about it yet. I don't want to spend years fighting with an insurance company in the court.

    Any suggestions would be appreciated .

    Cheers

    Chris
     
  12. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi All

    Some great comments.

    If you have a home worth $500,000, who would insure their home for say half the value or $250,000? Most people would insure for the full value or $500,000. So if a fire destroyed your home, you would not be any worse off financially.

    Ideally, we should have sufficient personal insurance that would result in no change to our financial position in the event of a serious illness or injury or death. However, why don't we? Cost appears to be a major factor.

    Stevenk: Trauma cover can become expensive as you get older but that's because the chances of making a claim are so much higher. Have you thought about level premiums (fixed) versus stepped premiums (increase with age)?

    Chris: You mention that insurance is a safety net. However, the reality is that insurance can be much more, depending on the level of your cover.

    Chris_qld: There are many differences between holding personal insurance within super or outside super - be sure you are aware of them. As income protection is tax deductibe, you can generally get a better after tax result outside super. Also, income protection policies outside of super generally have more features. The obvious advantage to insurance policies held within super is the cashflow issue, premiums are paid from the super fund and not your personal bank account.

    Cheers
     
  13. Chris C

    Chris C Well-Known Member

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    See for me personally I don't understand logically why insurance should be anything other than a safety net.

    Cost should always be a major factor!

    The reality is most insurance in this day and age is not a zero sum game, as in many insurance companies are in the business of making profits (which in my mind is a conflict of interest). Though based on this, one can assume that they achieve these profits by charging higher premiums than needed to exactly compensate those that make a claim on the insurance fund.

    As such insuring for anything more than is NEEDED for survival will ultimately result in a net loss for those that are insured. By this I mean, if your house is worth $1,000,000 and you insure yourself for that entire $1 million you will be paying premiums which also include a profit factor in them. Where as if you only insure for $250,000 it would mean you pay significantly less premiums (and the profit factor that is wrapped in them) yet will still insure you have a home to live in, if the "unlikely" but unfortunate event of fire was to destroy your house. These reduce premium payments should allow individuals to save and invest more and in turn build up their own insurance fund.

    Of course if a large mortgage has been taken out on a $1,000,000 property then that insurance should obviously cover an individual for their entire financial obligation.

    So from my logic you shouldn't be obtaining insurance for anything more than is needed for survival because these events are meant to be unlikely and as such over insuring yourself for unlikely events only erodes your wealth with time through a transfer of profits from you as an indiviudal to the insurance companies.
     
  14. FinSpec

    FinSpec Member

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    First Post!

    I see a lot of people about their insurance - hundreds over the years in fact, and there area few patterns that I see. Probably the most disturbing is when things get bad, as they are for some at the moment, the insurance is one of the first things to go. Not always a wise move, and you can understand a knee jerk reaction - not having insurance will not effect me TODAY, and I won't think about tomorrow.

    I always explain insurance as you fall back position. Most of us are working to have financial independance, and one day, it should come. On that day, you can say "no matter what happens, I can look after myself". Until that day gets here, you have a GAP - being the shortfall between being able to look after yourself, and not being able to - that's what you should be insuring for.

    Just my $0.02 worth :)
     
  15. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Chris

    Insurance is a very old and basic concept: "An agreement by which one makes regular payments to a company who pay an agreed sum if damage, loss, or death occurs."

    It is your choice whether you take:
    • No insurance.
    • Some insurance.
    • Sufficient insurance that wouldn't result in a change to your financial position should the unforseen happen.

    Be careful when you say these events are unlikely. According to Dr Barnard you have an 80 per cent chance of suffering a heart attack, a stroke or cancer. Dr Barnard is a South African surgeon who took part along with his brother, Christiaan Barnard, in the world’s first heart transplant in 1967. There are many other frightening statistics that show these events are not as unlikely as you may realise.

    Cheers
     
  16. chris_qld

    chris_qld Active Member

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    Thanks Andrew.

    Any suggestions regarding insurance companies with relatively good reputation?
     
  17. The_Age

    The_Age New Member

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    Hi there, first post for me.

    Work in banking and recently (Sept 2007) purchased my first property.
    Sorted my insurances out to ensure that if my personal circumstances change I & my partner won't be left in adverse financial difficulty.

    Andrew, this is a great topic to start.
    My father passed away without life insurance (originally had it via some kind of employee scheme but he had recently been made redundant and the policy did not apply at the date of death) so was very difficult for a single parent family to make ends meet considering he was the main wage earner at the time.

    Important lesson learnt - ensure you are adequately insured!
     
  18. Chris C

    Chris C Well-Known Member

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    Statistics can always look scary enough to convince someone to insure themselves, however I'd love to know how many people suffer a heart attack, a stroke or cancer under the age of 40 or 50, which obviously creates an adverse selection problem within the insurance industry. Which is another great reason why many don't take out insurance.

    Like me for example, I'm 24 and very fit, and the statistically likelihood of me suffering a heart attack or stroke in the next few years are somewhere between slim and buckleys, yet the health insurance cost for my mum compared to me are very similar, despite the fact she is probably many multiples more likely to suffer a life ending ailment (touch wood).
     
  19. Andrew Newman

    Andrew Newman Well-Known Member

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    Yes, very important lesson. Don't wait until it's too late.

    The Plan for Life awards (400 advisers were surveyed) should give you an idea of some solid insurance companies. I have provided a link here: http://www.planforlife.com.au/pdf/AFAPFLAwardsWinnersfinal.pdf

    Heart attack etc may be less likely at your age but a major risk for younger people is having a car accident or an injury. As I said before, it's your choice if you take out personal insurance.

    Cheers
     
  20. 1300 GET A PLAN

    1300 GET A PLAN Active Member

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    Why aren't more people insured?

    I can think of 3 answers

    Loadings
    Medicals
    Financials