A deep dive into what insurances you might needMar 03, 2022
This week it's a longer musing... where I look at what insurances you might need and there's a LOT. I cover everything from stuff you might insure, assets you might insure, loved ones you might insure and insurance for you.
I also mention some comparison sites and calculators which I've linked below:
For life insurance: https://moneysmart.gov.au/how-life-insurance-works/life-insurance-calculator
For private health insurance: https://www.privatehealth.gov.au/dynamic/search or https://www.finder.com.au/health-insurance/best-health-insurance-australia
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Of course, if you know that you need more help check out the My Financial Adulting Plan via the link below. Next round starts May 2022.
So whenever there's some sort of natural disaster, there's always commentary that happens very soon after around insurances. And I'm always hit up about what should insurance is relevant. What should I have? What shouldn't I have?
So what I wanted to do in this Musings is run through a whole stack of common insurances throughout your life that you might want to consider. And I'm just gonna add my opinion as to whether you wanna consider them, when you wanna consider them and maybe even how you wanna hold them.
So I'm gonna break this up into different categories. I'm just gonna briefly move through them so that you start to have a think about, huh? Okay. Maybe what do I need? And even just as importantly, what don't I need in my life?
So the first category I wanna cover is stuff. So this is things like home and contents, your car, your boat, all that sort of stuff, insurance.
And my thing, when it comes to your home and ensuring your home is that if you can't afford the insurance, then you can't afford the home. Because it's really important that you don't have this incredibly expensive asset, that let's be honest, you are never going to be able to afford to replace in many cases or that you have debt on and that isn't insured. So the very first thing that you wanna have a look at is: is my home insured?
The second thing that you wanna look at is the type of insurance, because what a lot of people get caught up on, or caught out on, sorry, after a disaster. And certainly I live for part of my week in the Blue Mountains. And there were fires through there many years ago where afterwards people realized that they were severely underinsured.
So what you wanna do is not just look at what insurance do I have, but what does it cover and how much do I have?
Because certainly in my council area, if you want to rebuild after fire, the cost of rebuilding is extraordinary because of all the fire protection that you need to have. So just say a normal house cost $500,000 to build, a house in a fire protection area might cost $700,000 or $800,000 to build. So it's really important to do your recon and make sure you have enough insurance.
The other thing is contents.
So if you're a renter, if you're a tenant or even if you own your own home, this is something you may wanna consider. Because the question is, if I was to be robbed, if there was floods, if there was fire, uh, could I afford to go and just replace everything again?
And if the answer is sure, but it would hurt, then you may consider not having it, but if the answer is, Ugh, no, that would really be costly, then the insurance, again, it's the type of insurance and how much insurance that's appropriate. And if you went, gee that's really expensive, what you could choose to have is insure half of your contents.
So you could look at the value of them and decide, all right, I think it would cost $200,000 to replace everything. I can only afford a hundred thousand, but at least it's something. So just be aware of what you are covering in the amount. And certainly on my own insurance cover, I've got cover for particular items that I have. And it was really important to me that there were certain things that are even insured outside the home. So it's just being aware of the cover you have and asking the question: what's important to me? Can I afford to replace it? And then what sort of cover do I need to have as far as the level of cover.
Now with your car, it's a little bit of a different animal.
So just say you're driving around a thousand dollars shit box. I think that's official name for them. So I used to have one of those back in the day and I would have your compulsory insurance so that if I ran into someone else that car's insured, but I didn't have, I also had, um, there was another type of insurance and the names escape me at the moment where it's, uh, protecting other people's cars and not just my car, but I never had comprehensive car insurance because for me, I could afford if I really needed to, to go and buy another a thousand dollar car and the insurance just wasn't worth it.
But for most people, if you've got a car, even if it might be worth, say $10,000 and up, and especially if you have a loan on that car, what you don't want is to be in an accident, your car's written off, you can afford to, uh, replace the other person's car, but you can't afford to replace yours and you potentially still have a debt on that car.
So that's the different situations where sometimes you might want comprehensive car insurance. Sometimes you might be comfortable not, but again, my rule of thumb is if you can't afford that expensive car insurance on your expensive car, then chances are you can't afford that expensive car. And you might look at another sort of car instead.
You would apply these same rule of thumb to boats and everything else that you have. So if you have a tinny, you may not insure it, but if you had a more expensive boat, then sure you might wanna go ahead.
Another type of insurance is assets insurance.
Uh, and yes, we just talked about stuff then. And some of those stuff are assets, but assets might be your investment property, or it might be your business. So when it comes to your investment property, you might look at not just ensuring the property itself, but you might also consider getting something like rental insurance.
So this protects you in some cases where your tenants can't pay, but also if they trash the property. So that can be a really important insurance that you might have, particularly if cash flow's a bit tight for you. If you're in a situation where, you know, what you, you were really comfortable and if your tenants didn't pay for three months, it really wouldn't matter, then sure, you might not bother with tenants insurance. Uh, but if cash flow is tight, if a tenant was to leave, if you would know that you'd be in financial strain, then looking at some sort of tenancy or rental insurance might give you that sleep at night factor. And of course that's a tax deduction for you as well.
And the other one is business insurance.
Now there is a gamut of business insurance. So often what I would suggest is that you find a good business broker and you work out the sort of insurance that's right for you. So I've had everything from professional indemnity to public liability for when people enter my premises. I know just before, um, I sold ATA, I had technology insurance; you know if someone was to grab your database and for that was all to be corrupted. So we had that, which is a new type of insurance. Um, certainly my preschool. We also have, uh, insurance, which sounds awful to say around, um, protection for you in case one of your staff do something wrong.
And again, it's worth noting that if you're in a situation where your staff do something wrong, are you gonna be liable for that?
And you might wanna get insurance to protect you for that. Because sometimes the fines or if you were sued, it actually might be quite severe.
So what I would suggest is that you speak to a great business broker, you find out what things are relevant for your business, and then you make the choice as to what am I happy to be insured for and what am I happy to let go because you know what? I'd be okay if I didn't have that. And then you're other questions are what level of cover do I want for each of these things?
Another type of bucket of insurance is your loved ones.
So pet insurance is something that is a new thing for probably in the last 10 years, it's becoming more prevalent. And again, the question is, if something was to happen with my pet, what would I be prepared to do?
How much would it cost? And then what will the insurance cover? Because that last question you might think that you are covered for something, but actually you're not, or you're only covered for a little bit. So you might wanna go and look into that cover to see if it's right for you. And then for me it would be if I, I can't afford to, and then what would be the emotion behind it. Would it cause me to spend money that I didn't have and to go into debt. And would that insurance cover that? So that then that emotional decision was taken off the table.
The other question is people, and I'm gonna actually wrap this up into you a little bit as well.
So if you've got a partner you might consider life insurance, uh, for each other. And life insurance is something that's really personal.
And for me, there's a few different covers with it in this. It's life insurance. It's something called temporary, permanent disability insurance. And then there's something called trauma insurance. And how, what you have, when they kick in and how much you have is a really unique question. I'm gonna put a calculator down in the notes for this, so that you can have a play and see. But a good rule of thumb that you might have for life insurance potentially is to cover your debts. Some people want, might want more than that. Some people might want less, but that's a really great rule of thumb.
Where you have that life insurance will also depend.
Often times you can get that in your superannuation funds, but again, at looking at the question, do I also want that outside? But sometimes your super fund has great buying power so they might be able to get it cheaper. But it's also knowing you might be in your twenties, life insurance might be optional within your super fund and you might be thinking, nah, I'm not gonna worry.
And there's this thing that the older you get, the harder it is to get life insurance. And you actually might be precluded from some conditions because you've already suffered them. So you can get life insurance perhaps, but it might be super expensive or a whole lot of preexisting conditions that you've had might be excluded. Um, and it's really important that you know that.
It's also really important to understand that if you ever, and you might think, yeah, I think I'm gonna be pretty fit and healthy, but just say you decide to see a therapist in the future. Uh, that's considered a mental health condition and suddenly there might be exclusions because you've seen a therapist and this is where I think life insurance is a little bit screwed, how they exclude and, um, and include provisions.
But it's just being aware that sometimes you want these things earlier, before these life events happen, so that that's kind of taken off the table for you.
So do you want life insurance? And then how much? Do you want temporary permanent disability? And often that can be a twin thing with your life insurance, where it's life insurance and TPD. Because a lot of times it actually would be more expensive to survive, especially if you were a quadriplegic or you had severe injuries. So that means that you get payments or a lump sum so that you can then afford to live and to have care, which is a horrible thing to think about. But something to consider. And trauma is that thing where if certain, things were to happen or certain injuries or sorry, illnesses were to happen, you would get a lump sum paid out.
You wanna look at the T's and C's. Certainly. My husband had cancer a number of years back and because of the size of it, our trauma insurance didn't kick in. So it's really important. You might presume that you have something, but you actually might not. So that's something to consider, but I think for most people in life insurance is really important to consider.
If you can't afford it out of super then inside super, uh, you might wanna consider increasing the life insurance in your super earlier, rather than later, um, thinking about the debt you might wanna one day cover. So that if later on you think, oh my gosh, this is a 'must have' not a 'nice to have'. You don't wanna find out you're in that position where it's far more expensive or because of the profession or the illness that you've had, you are suddenly excluded.
Two last things I wanna talk about is you, so two insurances that are in you.
So life insurance, trauma and TPD are obviously in you as well.
But income protection's another one to consider. So this is something where you choose to protect a percentage of your income.
Now you might think, yeah, but I'm a salary wage earner. I get sickness benefits. Why would I bother with this? Yes, but what if you have a protracted illness? What if you hurt yourself out of the workplace and you really need your sick leave to cover you for six months and you just don't have that long? Or just say you're a business owner and you need to put a manager in to take your place and how are you gonna afford that?
And certainly for me, I'm, I'm very fit and healthy. And I woke up one day, three years ago with a compressed nerve in my neck. That meant that for three months, I really couldn't work. And it's something that I just didn't expect And I thought that sort of thing happened to other people.
So income protection, what you can do is you can choose the percentage of your wage or the wage you're drawing from your business that you are covered for. Obviously the less percentage, the cheaper the insurance will be. The other thing that you can do is you can make it start immediately, or you can make it start in 3 months time. The longer you wait for that insurance to kick in, again the cheaper it's gonna be so that's something for you to consider. So income protection can be a really smart thing to have.
And finally, private health insurance.
So this is one of those things where people are really in two camps. I didn't have private health insurance up to 30. In Australia you don't get a percentage loading every year up to 30. And I just put money into a bank account and figured that that was my private health insurance. I snapped the tendon in my ankle at age 29. I used every last drop and then some of that money. And so at age 30, I signed up for private health insurance because I didn't wanna pay that 2% every year. Now, personally, I just have basic private health insurance, basic cover. I'm not gonna get pregnant. I'm fit and healthy. I don't want all the options because for me, I think that they're not worth it. And you're paying more for something that I'm happy to pay as I go. So that's how I currently have it.
You might be using your options so heavily that they're worth, but I think for most people, some sort of basic health private cover is worth it once you hit 30 plus. Certainly when you're considering having a family, but as always compare and check what the particular cover covers you for.
Now, for some of these more complex insurances like life and different ones, I really recommend that you speak to a broker or even a financial planner so that they can choose the cover that's right for you. With life insurance, for example, there's like, there's different things like stepped cover and there's so many nuances that you wanna be aware of, including the right fund for you. You might have to be sent off for medical assessments and the financial planner or a broker will know the right fund for you given what you're currently going through.
So my rule of thumb is usually if your situation is simple, a lot of the times you can do all of this yourself. As soon as you have any level of complexity, then you wanna go and speak to a professional and get them to help you.
If you've got questions, let me know. I'm gonna put a calculator for life insurance in the notes. I'm also gonna put a calculator for comparing things like, uh, private health insurance in there as well, so that you can have a look.
But as always, don't just dig your head in the sand. If this is something that you've been contemplating for a while, maybe just choose one different insurance every month, put it in on the first of the month and that's your opportunity to dig out the insurance, see what it covers, see who you with and see if it's appropriate, and if you wanna swap.
I hope that you've enjoyed that talk. A little bit longer than I normally do, but as always, uh, if you've got questions, let me know. And until then have a great week.