7 Most Common Insurance Mistakes New Zealanders Make
7 Most Common Insurance Mistakes New Zealanders Make
Score Yourself. How Many Are You Making?
1. Having No Insurance at All. Zero. Nada. Zilch.
More than 95% of homes and cars are insured in New Zealand. Yet, only 57% of New Zealanders insure their lives, while barely one in five insure their income.
This is down to many Kiwis viewing personal insurance as too complicated, maintaining a bulletproof attitude by thinking nothing will happen to them, or choosing to wait until they’re older to start buying insurance.
The sad reality is that the unexpected does happen and you could be caught completely off guard and unprepared. In your lifetime, there is a one in three chance of being diagnosed with some form of cancer, a one in four chance of developing heart disease, and a one in five chance of having a stroke.
It seems like madness to insure your car, home and contents, but not the person that made all those assets possible.
2. Not Insuring Your Most Valuable Asset – You
Over 1.2 million New Zealanders have some form of health insurance, meaning they can get the medical care they need, when they need it. But what about insuring your ability to earn an income?
People underestimate the value of your ability to earn an income. Think about it, your income generates all the assets you will own. If you are unable to work and your income stops, you asset base will eventually wither away.
Imagine owning a Bank Automatic Teller Machine (ATM) which automatically spits out between $1,500 and $2,000 every week. If you could protect your ATM from breaking down by maintaining it regularly, how much would you be willing to pay each year for maintaining your ATM?
Would you pay $5,000 or even $10,000 a year to ensure that you secure your $78,000 a year (1,500 x 52 weeks) from your ATM? Would you hire the best maintenance engineer possible, then pay them top dollar to ensure they look after your ATM around the clock?
Your ability to earn is just like an ATM. It generates money each week when you trade for your 40 hours of work.
That’s why income protection is one of the most important insurance products you can invest in. You protect your ‘ATM’ from ever breaking down (because machines do break down due to wear and tear, just like human beings). The good news is, income protection is much less than $5,000 a year to protect an income like $78,000. Depending on your situation, the premiums are approximately $1,200 a year, or $24 a week. That’s $3.50 a day for your own ATM.
3. Buying Insurance Based Solely on Price
Insurance is a grudge purchase, like buying tyres for your car. You need them to drive your car safely, but that doesn’t make handing over your cash any easier. Often you’ll be tempted to buy that cheaper ‘retread’ tyre rather than investing in a tyre that really hugs the road.
The most important thing when you invest in insurance is knowing with total certainty that you are protected, should the unexpected happen. Price, although still a very important factor in any buying decision, shouldn’t come before having peace of mind.
Shopping around for the best products to suit your situation is a must. An independent adviser can tailor a protection plan to your situation while ensuring that it’s within your budget.
It’s like any other shopping situation. You wouldn’t walk into a store and pick up the cheapest shirt. You’d look at the size, the colour, the style. Is it practical? Is it good quality? The same concept applies to insurance.
4. Buying Insurance Without Getting Advice
You can do almost everything online nowadays. With online insurers, you can purchase insurance directly over the internet and often at lower monthly premiums. The process is quicker, cheaper, and more convenient.
When it comes to protecting yourself and your family, price shouldn’t be the most important factor.
Some solely online insurers have very different products to those offered by traditional insurers. Traditional insurers such as Fidelity Life, Asteron Life and Sovereign typically cover 40 plus conditions in their trauma policies. Some online insurers may only cover four. In insurance, there is no free lunch. If you are paying a lower premium, it often means you will have less protection.
An independent adviser will advise you not only on what product you should invest in, but put together a contingency plan that details your back up option for every worst case scenario you could face.
Pro-Tip: Get the best of both worlds by talking with an independent adviser, listening to their advice, then buying your insurance online. However, you’ll miss out on several other advantages of having an adviser, such as having an expert in your corner at claim time, looking after your interests, but it’s a half way solution.
5. Buying Insurance From A Bank Rather Than A Specialist In Insurance
You may trust your bank with looking after your money, but should you trust your bank with looking after your life or ability to earn?
The problem with banks is that they are not independent. A few banks even own insurance companies. ANZ for instance, owns OnePath. ASB owns Sovereign. This means the banks can only offer one product, even though another product from another insurer would serve you better. Banks will be obliged to sell you their own products, which can result in higher premiums or products of an ill-fit to your situation.
An independent adviser will learn about your particular situation and then find the best insurance products to fit within your budget.
6. Ownership Structure That Invites Legal Sharks
If you are married, owning a policy together with your partner will speed up the process of receiving a claim when you pass away.
Imagine that in the event of your death, and you were the sole owner of your insurance policy. Who will your payout go out to? The estate or probate process can be a long, drawn out one, taking up to nine months, especially if more than one relative decides to argue for their share of your estate.
To avoid the courts, the best strategy is to own your policies jointly. In the event that you die, your surviving partner will immediately receive the life insurance payout. This will prevent any legal challenges such as an ex-spouse or other unwanted relative getting their hands on your money.
Similarly, if you did have joint ownership and have recently split from your partner, you can now easily remove each other from the ownership of each other’s policies.
If you’re single, you should have a will in place, with power of attorney for the same reason. Make sure that your assets go out to the people you want them to. Get in touch with your lawyer if you don’t already have a will set up.
7. Not Having Regular Insurance Reviews
When did you last look over your insurances?
If your last review with your insurance adviser was over 12 months ago, chances are your situation may have changed and you could be over-insured or under-insured.
As you get older, the amount of insurance you need declines. Your children leave home, your mortgage gets paid off and your risk level drops. The opposite is true for younger people, forty years and below.
If you have an independent adviser, you may as well make good use of their services. Ideally, you should meet with your adviser every 12 months to review any changes to your lifestyle.
Some changes which will affect your insurance:
Having a child
A child moving out of home
Getting married or divorced
Increasing your income or debts
Purchasing a property
Purchasing a business
You should also contact your adviser if you are injured or fall ill, as you could be able to make a claim, even if you don’t think you’ll qualify. Come claim time, your insurance adviser goes in to bat for you and will liase with your insurance company to ensure your claim is processed as soon as possible so that you can start your road to a stress-free recovery with one less thing to worry about.