Is your Insurance too Expensive? – Article by Daniel Glynn from our October 2016 Newsletter
It is a fact that none of us are getting any younger. Having just celebrated my 50th birthday, I am acutely aware of what that means for my body and also what it means for my insurance premiums. In fact there will come a day when I will consider my insurance too expensive and will be tempted to cancel the policies.
If you are nodding in agreement and this has been on your mind… Wait! This is a time for rational thinking and not emotional response. Let’s weigh up what the options and arguments are:
· We need insurance now more than ever. One in three people in New Zealand get cancer between the ages of 50 and 65 years of age. This is when the cover really counts! And that is just cancer, not to mention the heart attacks, strokes and other dreaded diseases that may befall us as we age. Medical claims amongst this age group and older escalate and waiting on the public system to assist can be very frustrating and in some cases life threatening.
· If you are retired, or nearing retirement, you have to think about your loved one if you pass away. New Zealand Superannuation payments reduce from approximately $34,900 per annum per couple to around $23,000 per annum when one is single, and the fixed living costs remain roughly the same! Life insurance may provide a very necessary financial gap, even if it is just to help the survivor make the adjustment to the lower income.
· There is no getting away from the fact that as we age our insurance goes up. This is because the insurance company prices the policy, ‘risk for age.’ However, if you are still young enough, you can look at getting a policy on a level premium, which means that you pay a bit more now but the premium no longer goes up as you age, enabling you to keep the insurance for longer.
· Options include stepping down the sum insured rather than canning the policy completely. This will reduce the premium accordingly and is a useful way of keeping some cover than having nothing at all. You can also implement a premium freeze, which is where you set the premium and the life cover amount steps down.
· Replacing the insurance with a cheaper policy can be useful. Some polices are on old rates, have high fees and often do not provide all the benefits. Upgrading to a new, cheaper policy can be useful especially if you’re finding your insurance a bit too expensive. Your adviser can look at pricing in the marketplace and may be able to suggest a less expensive option.
· There are specialist companies that offer ‘Golden Life’ policies, especially designed for the older generation. We can provide you with options to move to this kind of life insurance.
· Medical insurance is one where premiums rates are accelerating at a fast pace to keep up with medical inflation and high claims rates. Whilst it is tempting to cancel cover, access to good medical experts will become more and more expensive and it is alarming when people cancel their cover. Most insurance companies now offer a higher excess, which when implemented successfully reduces premiums to more manageable levels. This can suit the older generation, who most often have sufficient funds to support a larger excess but cannot afford thousands of dollars in medical costs. Many a financial plan has been waylaid by capital being diverted towards paying for medical costs, when it should be hard at work paying for retirement!
I think reviewing your insurance annually with your financial advisor is a must, especially as insurance companies bring out new products, up-date existing products and it is essential to ensure your product has the new benefits passed back to it. Insurance, next to mortgage repayments is one of the most expensive financial products you will pay for, so it is vital to make sure you are getting a good deal and have all the options before you simply cancel. It may be then that you need it the most!
