This year is certainly testing individual’s abilities to protect and maintain their lifestyles. So we invited Shane King and Kim Mason, Monument financial advisers, to discuss what’s happening in the insurance industry and options that you may want to consider during this cost-of-living crisis, particularly, what their clients and industry providers are doing to help navigate their way through these uncertain times. You can watch the recording here.
In this blog post, we asked Shane and Kim to answer all the questions from the webinar, so take a look below.
1. Everyone is talking about a cost-of-living crisis. What are you hearing from your clients, and what actions can individuals take to manage their way through this crisis?
KIM: Yes, absolutely everyone is talking about the increased cost of living and it’s really affecting how people are spending their money. Some people are really hurting financially right now.
On a positive note, I do feel like this tightening of belts is getting people to analyse their spending more than ever and part of that is reviewing some of those regular costs like insurance.
This is positive because it moves people away from that old set and forget attitude and moves them towards a more proactive one – you should know what you’re paying for. Insurance cover should never just be set and forget, as life changes, our insurance cover really should be tweaked so it remains fit for purpose.
We need to be really thinking about those scenarios that would really affect us financially – if you or your partner die, if you or your partners are unable to work due to sickness or accident, or if you’re diagnosed with a serious illness or require surgery.
It’s about ensuring that we’re paying for the correct amounts and types of insurance cover that will really protect us in our current situation, not the situation we were in 10 years ago. So regularly reviewing your insurance cover can help with ensuring you’re not paying too much.
Funny story - I was speaking with someone last week that only just noticed a payment of $29 that they have been making every fortnight for the last 21 years that they knew nothing about! That’s over $15,000.
If the one positive that comes from this current cost of living crisis is that people become more aware of where their money is going and more pro-active and interested in keeping their costs, like insurance, relevant and current, then that’s got to be a good thing.
SHANE: Yes totally agree with what Kim says. It is having an impact as not only are insurance premiums increasing relating to age, claims experience and inflation but also other household expenses are increasing such as food, other insurance cover rates, the overall general costs of running your house have increased. It is having an impact on affordability.
2. What is your advice to those people who just say they can’t afford insurance. Possibly, their budgets are so tight that they believe they haven’t got enough income to meet the cost of insurance cover?
SHANE: Unfortunately, it is well known that in New Zealand, we tend to look at life and health insurance is a nice to have rather than a must have purchase. Having been in the insurance industry for the past 18 years, this thought process is also my experience.
A couple of years back, I had a client who emailed me to cancel their insurance as they could no longer afford to pay it, due to a change in their situation. I felt something just wasn’t right due to the tone of their communication and the fact they had only had the cover in place for a year or so. After several attempts I finally got hold of them to discuss what had changed in their situation.
My client had stopped working due to a medical condition that they thought would not be covered. I explained that they have a mortgage protection benefit I was sure would be accepted for a claim. They also had what we call premium cover that would pay the whole policy premium while my client was not able to work.
Long story short, I helped my client with the claim, which was accepted. Had they not had this cover in place, their struggle of meeting their mortgage would have been financially challenging as they were down to one income. This claim covered them for the 10-month period my client could not work. They have since gone on to make further claims under the policy on the other benefits they have.
My point is, they couldn’t afford not to have insurance. Without this cover in place, they would have struggled to meet their financial commitments which may have led to having to make some hard decisions. Insurance avoided those hard decisions in their case.
My advice to clients is simply to look at other areas you can cut back on with your spending. Your insurance can protect everything you have built over the years and normally at a time you least expect your health to take a turn.
KIM: A client of mine that had just gone through a relationship break up was in quite a different financial situation and her budget for insurance literally more than halved. We had many conversations about her new situation and we were really able to prioritise her different insurance types, working out what was the top priority.
In this case that was income protection as she was now the sole income earner for her household and that actually meant that she cancelled her medical insurance, as making sure that she still had money coming in if she was off work due to sickness or accident, had become a lot more important than private medical cover.
We still had to reduce the amount of income protection and mortgage repayment cover and also decreased the payment period and decreased the wait period, but the main thing is that she still has SOME cover, even if it is not the “Optimal” amount. Please don’t ever be scared or embarrassed to tell your financial adviser what your budget is for insurance – from a financial advisers point of view, it is so great to know what parameters you need to work within.
3. Apart from affordability, what other circumstances should trigger a review of your insurance arrangements?
KIM: Our lives are continually changing and there are lots of instances where the change may mean that your cover could do with a review or a little tweak.
Some of those changes are when you have kids, other changes are when kids leave home, relationship break ups, retirement, illness, redundancy, anything that might affect your financial situation.
Because our financial circumstances are ever changing, we adjust our budget and spending accordingly right. And reviewing our insurance cover regularly and keeping it currently during all seasons of our lives is really important.
SHANE: Other situations that can trigger a review include: A change of jobs where your income may have actually reduced. Depending on the structure of any income protection, you may not get all the benefit you are paying for. Just checking in with your financial adviser to make sure it is still appropriate.
4. In these difficult times what are insurance providers doing to assist individuals?
SHANE: Insurance providers do have tools to assist you in certain situations: For example, during COVID time, a lot of people were either losing jobs for a reason or another, financial were really touch so insurer companies have something called Premium holidays which can offer you assistance under certain circumstances. Examples include losing your job, bankruptcy, leaving paid employment to become a full-time caregiver for your partner or child due to an illness or injury. In some of situation, you can remain covered while not paying your premium. The general allowance is around 6 months over the life of the policy.
Premium suspensions are also offered by most insurers, not all. This can include events I just mentioned but also the likes of overseas travel, tertiary education or parental leave. With premium suspension, you do not have to pay your premiums, however, are not covered for any event that happens while the policy is suspended.
As mentioned, every insurer treats this differently. My advice is to get in touch with your adviser if you are going through a tough time and see if it is available for you rather than cancelling your policy outright.
You may also be able to adjust your current level of cover by removing some of the extra benefits within your cover, however, still maintain the dollar value of the benefit. There are also benefits you may be able to switch to without health assessment that although have not as good policy wording, may still be effective at achieving your goals.
KIM: It’s also important to note here – know what cover you have, what are the in-built benefits and what you may be able to claim so you don’t miss out on money! I was doing a review with a client a while ago and she mentioned that she had plenty of time to talk as she was having a few weeks off work because of a broken ankle. She had income protection but the wait period was longer than the time she would be off work so she hadn’t even thought about claiming. She didn’t realise that her insurer had a Specific Injury benefit – we were able to get over $8k paid out to her. That wasn’t a special benefit to help during difficult times, that was just part of her regular policy.
5. Do I really need insurance cover? If so what type?
SHANE: I have heard all sorts of comments on insurance and the need for it over my time in the industry. Comments around having to pay premiums for something I may never need, it’s a waste of money, I won’t care once I die, I have heard a few times, the problem is, those left behind will care if all they have starts falling down around them. The majority of these comments are form people who aren’t clients, thankfully.
I only deal in the good that insurance has done for my clients, only because they have it in place. However, I regularly hear stories about those who struggle when their health takes a turn. Like many of you on here today, you will have heard stories come across the likes of your FaceBook page and in the media of people trying to raise money to keep themselves alive with drugs not funded, raising funds to meet their household costs as they can’t work due to a medical condition or raising the funds to cover a funeral and pay for the costs of their family left behind.
I have dealt with a number of death claims, trauma claims and income protection claims and in all cases, it has made a difference to my clients. It has avoided them stepping back 10+ years to where they were and maintained their current asset base and future plans.
If so, what type of insurance do I need: It may transpire after a review that you don’t need insurance or less cover as you have enough assets you can self-insurer.
6. Should I retain life insurance with no mortgage and adult children?
KIM: This is very general, but let's break Life down into 4 different stages. Because at different stages in your life, different types of insurance will be more important to you.
Under 30's: You've probably got a fairly low level of debt, few assets and no dependents. Insurance probably isn't feeling very important to you at this stage at all. However, insurance is pretty inexpensive when you’re young, so now may be a good time to look at getting some into place, medical insurance for instance, especially before any medical conditions arise, to avoid pre-existing medical exclusions later on.
Young Family: You may have a mortgage, a partner and/or children. Life insurance is far feeling far more important now, because you want to make sure that if you were to die unexpectedly, your loved ones could stay in the family home, hopefully with little or no mortgage, you would also want to make sure there was money available for living expenses for your family for the next x amount of years so your partner if you have one, wouldn't have any financial burdens without your income, and particularly when you have young children.
Income protection is also important at this stage as living expenses are often quite high and there may be times when there is only one income earner in the household due to having babies and children. If you were unable to work due to illness or injury, there would be a huge negative financial impact for you and your family. Income Protection is a really good part of your financial resilience plan, as we don’t always necessarily have a huge buffer in our savings accounts.
This is also a really good time to be thinking about Trauma Cover which is a lump sum payout should you be diagnosed with a critical illness like heart attack, cancer and stroke. This is definitely a time when having a robust insurance plan in place is essential.
Older Family: The kids are leaving home, your mortgage debt is decreasing or even gone and your assets, savings and investments like Kiwisaver are increasing, so you may not need as much Life Cover as when you were in the Young Family stage.
You may also be ok with lower levels of income protection as you may be servicing less debt and therefore your living expenses may not be as high as they have been in the past. Also, if you’re a couple, you may both be working now, so if one of you wasn’t able to work due to sickness or accident, the financial impact may not be as devastating as it could have been during the Young Family stage with perhaps only one full time income earner in the household. So this is a time when having a good look at your cover is really important to make sure that you aren’t over-insured for your situation.
There is an increased focus on your health, so major medical insurance is feeling more important and hopefully it is already in place before any health issues arise.
Retirement: Income protection isn't required any longer, because you are no longer working, but medical cover is feeling really important to you. You may be looking at increasing your excess on your medical cover to help keep your rising premiums under control. You may also be interested in a little Life Cover to pay off any remaining debt, pay for funeral costs, or even as a type of inheritance for loved ones.
Insurance Needs
As you can see, insurance needs really do change throughout your life and your level of cover should be reviewed regularly to ensure it's still relevant to your current situation, to ensure you have sufficient cover, but you’re not paying for more than what you need. That’s where having a Financial Adviser is really important. A Financial Adviser can recommend insurance for all different stages of life and will work with you long term to ensure that you have insurance that is tailored to your needs, and changes as your life changes.
7. Is there a trend of consolidation (or transferring services) among insurance providers? For example, AMP Life to Resolution Life.
SHANE: Insurers have consolidated for a long time over the years. If anything, it strengthens things for clients particularly around improved policy wording and innovation of benefits.
8. I have set my different insurances separately, would it make sense to go to an advisor and review them all at once?
SHANE: Yes, always good for an adviser to know what you have with other insurers and advisers. When doing a full review, we are able to give better advice when we know exactly what cover you have. Our advice may also lead to recommending you keep the cover you have in place, especially if there are pre-existing conditions.
If you have more questions about Life and Health Insurance, you can submit it in the comment section below. Or if you are interested in finding out more about your life and health Insurance options, we have access to a nationwide team of Monument financial advisers who can provide you with more personalised approach. Monument has been our appointed business partner since the early 1990’s to provide financial advice to our members on life and health insurance products (HealthCarePlus is not legally able to provide financial advice).
It won't cost you anything for this chat and there is no obligation for you to do anything following the conversation. But we do strongly recommend that if you are interested in looking at life insurance further that you seek their advice before making any decisions.
So to speak directly to a Monument financial adviser in your local area, please click the button below to book a chat with them.
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