Seniors like to consider the fine print when it comes to insurance. On this page we cover the six key issues to consider before purchasing insurance and offer a useful resources selection for those ready to buy.
Insurance
What is Insurance?
Insurance involves paying a fee (premium) to an insurer who promises to pay out to cover some form of illness, disability, loss or damage. Insurance can cover your body, your possessions, your income, your savings. There is very little that cannot be covered.
We all have different risk profiles and some people can go year after year uninsured and ‘get away with it’. Others would feel less than secure without insurance. A small percent may be without cover because it has been refused due to a pre-existing condition. Those who do have adequate insurance will often find that this is one financial ‘worry’ removed and they can concentrate more productively on wealth creation strategies.
Insurance may feel like an expensive drain on your discretionary spending, but it can make an enormous difference to how you cope with a trauma. Failing to review your insurance requirements means you will fall victim to the ‘it’ll never happen to me’ syndrome – and that’s definitely an uninsurable illness.
So once you’ve decided to ‘get covered’, the best strategy is to take a little time for research and decision making and don’t just make a choice based on price, but rather on the suitability of the cover for your particular circumstances. Ultimately insurance is about risk and how much risk you want to take. You may decide certain possessions are not worth insuring if they can be replaced cheaply. But whether you need to more or less insurance, knowing what you really require will help you make decisions with clarity and you will be less likely to be swayed by an underlying fear factor.
Don’t be put off from asking any amount of questions: you have a right to know what you’re getting.
Who Sells Insurance?
General insurance, including health, home, motor and travel, can be purchased directly from insurance companies in person, by telephone or via the internet. You may wish to use a broker who can offer a comparison of insurance products quotes and advice.
Life insurance and income protection policies are purchased through authorised representatives. Because these products are financial in nature, the sale of such insurance is governed by APRA and ASIC and must conform to conditions listed under the Financial Services Reforms Act.
So now you know what you want, it’s time to go shopping. You can look around for an appropriate policy and the best price for your specific needs, or you can use an agent or broker.
Not all insurance cover is the same and cheapest is not always best. One way to make the premiums more affordable may be to hold life and disability insurances inside your superannuation fund.
Good claim, bad claim
Knowledge is power. Most people are refused a claim because they haven’t read their policy. Don’t just throw those pamphlets out or in a file. A condition or exclusion clause in the policy is the reason 33 percent of claims are knocked back. In 16 percent of cases the claim just isn’t covered by the policy.
If you have real doubts, an insurance company must tell you in writing why it has disallowed your claim and advise you of your options.
The recent introduction of a revised industry Code of Practice has clarified many murky areas in insurance. If you have genuine misgivings, you can contact the IEC claims review panel or the Life Insurances Complaints Services.
Need to know: When in dispute over a claim, ensure you have a written record of the date and details of your phone calls and interactions with the insurance company.
Types of Insurance
What exactly can you insure? Insurance is available to protect your assets: your health, your income, you savings and possessions. The aim is to purchase enough to replace the asset or possession at today’s value.
Wordy insurance policies may seem similar but the coverage can vary, so the key is to know what is covered and what is not. If your circumstances vary, your policy will need to reflect these changes. New furniture, retirement or the decision to open a home office can affect your policy.
Health Insurance
Your greatest asset is yourself. Private health insurance provides hospital and extras cover separately or packaged together. How much you spend on dental or optical per year may determine whether it’s worth taking extras and many private insurers now include natural therapies.
Life Insurance
People who depend upon you could face great hardship or change in income if you die or become permanently disabled. Understanding different types of life insurance will help you decide the most appropriate. You will be assessed on the basis of your health and age, family health history, and smoking status amongst other criteria.
A ‘whole of life’ policy pays out the insured amount plus any bonuses when the insured dies. It can often be surrendered at any time with the accrued benefits paid out.
An ‘endowment’ policy means a payment is made either once the person reaches an agreed age or upon their death, whichever comes first.
The cheapest form of life insurance, called a ‘term’ policy, pays out only if the person dies within a specified time.
Trauma or crisis
Trauma cover is usually included as part of a term policy, but is also available separately. If you suffer a heart attack that prevents you from working for a time or forces early retirement, trauma insurance will pay a tax-free amount – usually a percentage of the sum insured.
Total and permanent disability
If you become unable to work, this type of insurance may entitle you to a lump-sum payment. It’s often included in life insurance, and is a standard feature of superannuation policies.
Income protection
Income protection insurance provides up to 80 per cent of normal earnings, to cover any financial commitments such as lease payments. Often income protection premiums are often tax-deductible.
Your debt
If you take out a loan, consumer credit cover will help meet your repayments if you become ill or unable to work or if you die.
No place like home
Prevention is better than cure, so secure your home or property. Don’t be shy to ask what kind of security systems will earn you a lower premium.
Building
Building insurance should cover any damage to the building structure from unexpected disaster, such as fire or a crashing tree. Make sure you’re covered for replacement of windows, ceilings or floor materials. And don’t forget the new pergola or in-ground swimming pool.
To work out the insured value, ask how much it would cost to return your home to its original condition, not the value of the property on the real estate market. If you have any doubt about this, arrange for an independent valuation.
Contents
You can insure your home contents in two ways: while they are on your property, or when they are with you, whether you are in the home or outside it. You’d be surprised how much you own. Incidental purchases, such as CDs, add up quickly. Also consider your investments and collectibles.
Jewellery which has been professionally valued needs to be specified in the insurance policy proposal. It will make your claim much easier if you have photos of your prized possessions. Ask your insurer how they’d like to see your inventory. Valuables cover is simply an extension of contents insurance.
Need to know: If you are travelling overseas, check if you’ll be covered, as some insurers will only insure your property while it is in Australia.
Motor vehicle
The cost of vehicle insurance premiums factors in your age, previous claims and driving record; the type and age of your vehicle and its modifications; where and how the vehicle will be parked and the incidence of theft in your area.
If you have an accident, never admit fault, no matter how strongly you feel you were in the wrong. The insurer reserves the right to deal with the issue of liability.
Check if your insurer has their own repair centre or will make you use a certain repairer. And remember to look at the excess payable.
There are three types of purchasable vehicle insurance. The compulsory third-party insurance included in your vehicle registration fees covers personal injury to others only.
- Comprehensive
The most expensive option, comprehensive gives the greatest level of protection. It can even cover reimbursement of towing and legal costs, or compensation for property stolen from your car. - Third party fire and theft
Not all insurers offer it, and conditions do apply, but third party fire and theft covers loss or damage of another’s vehicle or property and loss or damage of your own vehicle by fire or theft. Some insurers offer an extra clause called an uninsured motorists’ extension, which will repair your property if it is damaged by someone who is uninsured. - Third party property
This covers damage to other vehicles caused by your vehicle. It does not cover your vehicle. It is often taken out for a vehicle of relatively low value to cover the cost of damage to a more valuable vehicle or other property owned by a third party.
Should your vehicle be a total loss, there are two ways the amount paid out by the insurer can be calculated. If the sum insured is agreed under a market value policy, the insurer will calculate what your vehicle will be worth on the open market, taking into account its condition and mileage.
If the policy is an agreed value policy, the insurer and owner agree on the value of the vehicle at the time the policy is taken out.
Marine Protection
If you own a boat, store it in a safe place, remove equipment from it if you are not using it, and make sure windows and hatches are secured. Also, keep photographs of the boat and its equipment with your policy.
Travel
Imagine being stranded far from home without money, papers or possessions. Or worse, you need hospitalisation in a foreign country. Travel insurance is vital for even the shortest trips. If you are going to a third-world country, make sure your policy covers possible evacuation and be aware that pre-existing conditions won’t be included. Also, travel insurance doesn’t cover loss of items like cameras and unaccompanied baggage.
If you need to extend your travel insurance, remember to do it before it expires. You won’t be able to do so from outside Australia.
Need to know: Always make sure the insurer reimburses you in Australian dollars.
Buying Insurance Through Your Super Fund
Super ways to buy:
Should you buy through your fund?
Premiums for insurance outside superannuation are paid with after-tax income. A superannuation trustee uses any contributions to pay for your insurance.
Many of these contributions are eligible for tax concessions and the trustee claims a tax deduction for the premiums. Depending on circumstances, this can give the effect of using pre-tax income to pay your premiums.
Example:
Karen arranges to salary sacrifice $500 into her superannuation fund to cover the $500 insurance premium inside her fund and does not pay income tax on the $500. The contribution would normally be added to the fund’s taxable income with tax deducted at a rate of 15% ($75). But the trustee can claim a tax deduction for the insurance premium, so the contributions tax is reduced to nil.
If Karen’s tax rate is 31.5% and she holds her insurance outside superannuation, she needs to earn $730 to give her the $500 after tax.
What are the pitfalls?
Before being too excited by the savings, there is a catch. The cost of the insurance may be cheaper, but you may find problems if you make a claim.
Claim proceeds are paid to the trustee. The trustee adds the money to your superannuation account. Therefore the superannuation rules for access and taxation apply.
The main pitfalls of holding insurance inside superannuation include:
- Money may be “trapped” inside your superannuation fund, with no access until you are at least age 55 (or possibly even 65)
- Increased processing time which can delay payment or decisions
- Limits on who can be a beneficiary of any death benefit
Freeing your money
A superannuation condition of release must be met to get the money out. Death is an automatic condition of release. But the release of total and permanent disability (TPD) benefits is not as easy.
If a TPD claim is paid, you can apply to the trustee for release under the permanent incapacity definition, but this is a restricted definition. Just because you had the claim paid, does not mean this definition will also be met.
How much tax?
If insurance is held outside super, the claim proceeds are generally tax-free. When held inside superannuation the proceeds may be taxed heavily, especially for large payouts, self-employed people (sole trader or partnerships) and people under age 55.
Example:
Assume Karen is a 35-year-old florist who operates as a sole trader. She is severely injured in an accident and makes a claim for the TPD insurance in her super fund.
Karen meets the insurer’s definition of TPD and the $500,000 claim is paid into her superannuation account. She applies to release the money. If Karen does not meet the definition of permanent incapacity, the money will remain trapped.
If the money is released as a lump sum, tax is payable. Employees may receive a portion tax-free, but as a sole trader, Karen does not. In her case, the tax of $139,095 is payable and she receives only $360,905.
What is the solution?
Putting insurance inside super can create significant problems at claim time.
Get good advice to balance the tax concessions on premiums with strategies to manage the pitfalls. You may prefer to hold all or some of your insurance outside super. Similar issues apply if you have a self-managed superannuation fund. You should take care to follow the rules to avoid heavy tax penalties.
Comment on Insurance in super was provided by Louise Biti, Head of Technical Services, Asteron
Understanding the Fine Print
Does anyone actually read the pages of fine print at the end of an agreement? We all want to understand our rights and restrictions. But what are the main things you need to know?
Remember you are signing a contract which reflects your current situation. Any change in this situation which is not reported to your insurer may affect your ability to make a claim. The insurer may alter the terms and conditions of the policy, charge an additional premium or decide not to renew the policy, particularly if you don’t provide the information immediately.
The following are examples of circumstances where you must notify your insurer or else find yourself heading for a bad claim experience.
House
Unoccupied property
If your property has not or will not be lived in for more than a few weeks. If you are going away for 60 or more consecutive days, explain to your insurer what you have done to secure the premises and get agreement in writing to confirm that full cover will remain in place.
Property usageIf you commence using any part of the home for professional purposes; remove any security devices; carry out alterations or repairs costing more than a pre-determined amount (generally $75,000). If your property is being used as a home office you need to advise your insurer. You may also need to review your public liability cover if you are expecting a lot of business visitors or deliveries.
Taking precautionsIf you do not take all reasonable precautions to prevent loss, liability, injury or damage; secure buildings against unauthorised entry; maintain the insured buildings in good repair; and effectively secure tarpaulins on buildings undergoing renovation.
Need to know: Ask what kind of security systems will earn you a lower premium.
Contents
Valuables
If you don’t have a professional valuation and don’t list or specify your valuables in your policy. It will make your claim much easier if you have photos of your prized possessions. Ask your insurer how they’d like to see your inventory. An additional charge may apply.
‘New for old’If you don’t know whether your policy replaces or repairs lost or damaged property to the condition it was in when new, or replaces property with that of the equal value and condition of the property at the time it was lost or stolen.
Motor vehicle
Driving
If the drivers of the vehicle change; the place where it is garaged changes; the vehicle is modified or the usage changes from private to business. If any driver has a traffic offence other than a parking fine; has had their driver’s licence cancelled, suspended or disqualified; has been responsible for causing an accident; or has had a vehicle damaged or stolen.
New car
If you replace your vehicle, the insurer will provide temporary cover for from the date of purchase to a maximum of 14 days. You must give the insurer full details of the replacement vehicle during this 14-day period and pay any extra premium required.
Wear and tearDon’t expect to be able to claim for depreciation, wear and tear, rust and corrosion or structural or mechanical breakdown. Also check if your insurer has their own repair centre or will make you use a certain repairer.
Need to know: If you have an accident, never admit fault. The insurer reserves the right to deal with the issue of liability.
LifeCigarettes
If you take up or give up smoking. Premiums are generally higher for smokers. Most insurance companies require a non-smoker to been smoke-free for at least one year, often longer. In sickness and in health. If your health changes, your policy cannot be cancelled. When you renew your life insurance, there should be no need to provide evidence of good health. But you can cancel your policy at anytime.
Need to know: The recommended amount of life insurance is generally equal to 10 times your salary.
Income protectionIf you have a ‘basic’ policy, terms and conditions can be very limited – ‘extended’ or ‘plus’ policies bring greater flexibility. In this case, you can choose the waiting period, that is, how long you must be unable to work before the insurer begins to pay you. It can be tailored to cover you once any accumulated sick and long service leave are used. The ‘benefit’ period is how long you will be paid while unable to work.
Health
Waiting periods
When you join a health fund or upgrade to another level of cover, be aware you may have to wait for a specified period of time before you can make a claim.
Pre-existing conditionsBefore agreeing to in-hospital treatment you should confirm the level of benefits payable and whether or not the pre-existing ailment waiting period will apply.
Out of pocketSpeak to your doctor and health fund to find out if they have arrangements that minimise the out-of-pocket expenses you have to pay. This will help to ensure that you don’t receive any unexpected bills after your treatment.
In cases such as an emergency admission, it may not be possible to discuss fees prior to treatment. Where this occurs the hospital, health fund and doctors should provide you with this information as soon as possible after treatment.
Need to know: Health funds can waive or reduce waiting periods, but they can’t increase them.
TravelIf you need to extend your travel insurance, do it before it expires. You won’t be able to do so from outside Australia.
They say ‘If you can’t afford travel insurance, you can’t afford to travel.’ Often it’s your family who has to foot the bill. If you do not have travel insurance, the Department of Foreign Affairs advises that daily hospitalisation costs in Southeast Asia regularly exceed $800; return of remains from Europe can cost in excess of $10,000; and the cost of medical evacuations from the United States regularly range from $75,000 to $95,000 and sometimes up to $300,000.
Need to know: Policies will not always cover claims made in those countries to which the Department of Foreign Affairs and Trade recommends you do not travel. For up-to-date travel advice, visit The Australian Government’s travel advisory and consular assistance service.
Go there
Duty of disclosure
Remember the insured always owes a Duty of Disclosure to the insurer. This means you must tell the insurer, before the contract is concluded, everything you are aware of that is relevant to the policy.
Insurance Glossary
Agent
An agent is an insurance intermediary who represents the insurance company. An agent earns commission which is paid by the insurance company who it represents.
Agreed value vs. market value
With this type of motor vehicle insurance you reach an agreement with the insurer on how much will be paid if the vehicle is a total loss. Under a market value policy, the insurer will calculate what your vehicle will be worth on the open market.
Adjuster
One who investigates and assesses claims on behalf of insurers (a claims adjuster or loss adjuster).
Broker
A licensed expert or company who advises people on their insurance needs and negotiates insurances on their behalf with insurers. A broker earns a commission paid by the insurer.
Claim
The amount payable by the insurer under a contract of insurance.
Claimant
The party making a claim under an insurance policy. The claimant may be the insured. Under liability policies the claimant is the third party.
Compulsory Third Party Insurance
Insurance covering accidental bodily injury to, or the death of, third parties as a result of a traffic accident. All owners of motor vehicles using public roads in Australia are required to hold this cover.
Comprehensive insurance gives the greatest level of motor vehicle protection. It can cover incidents such as reimbursement of towing and legal costs, or compensation for property stolen from your car.
Cover
The scope of protection provided by an insurance or reinsurance contract.
Short-term cover, generally lasting two weeks.
Duty of Disclosure
The duty of an insured to disclose all relevant matters to an insurer which are known by the applicant to be relevant.
Excess
The amount that is to be borne by the insured before they are able to claim on the policy, sometimes called a ‘deductible’.
Indemnity
The amount paid by the insurer to the insured for loss or damage covered under the insured’s policy; the benefit of insurance.
Insurance policy
A contract whereby one party (the insurer), in return for a premium, agrees to indemnify another party (the insured) against specified damage, loss or liability arising from specified risks, or to compensate them or a beneficiary in the event of a specified event.
Insured
A person whose interest is insured, usually the policyholder.
Liability Insurance
A term describing those types of insurance providing indemnity for the insured’s legal liability to third parties resulting from negligent acts or omissions.
Limit or limit of liability
The maximum amount an insurer will pay under a particular policy.
Policy terms
A list of ‘defined’ or ‘listed’ events against which you are covered.
Premium
The amount payable by the insured for a contract of insurance.
Professional Indemnity Insurance
A policy providing indemnity to professionals against claims made against them resulting from legal liability to others for loss or damage arising out of professional negligence on the part of the professional.
Public Liability Insurance
A class of insurance covering claims against the insured by members of the public for personal injury or damage to property for which the insured is legally liable.
Reinsurance
A process whereby the insurer (the first party) agrees to indemnify the reinsured (the second party) against a risk insured by the reinsured under a policy in favour of the insured (the third party).
Risk
Used in insurance in many senses, usually as the subject matter of insurance, uncertainty as to the outcome of an event, the probability of loss, the hazard or peril insured against, and danger.
Sum insured
The limit of liability of the insurer under a contract of indemnity or the amount payable on the occurrence of an event insured against under a benefit policy.
Term
A period of insurance; the time for which anything lasts; a word used in an understood or defined sense; a condition or stipulation in a contract.
Covers loss or damage of another’s vehicle or property and loss or damage of your own vehicle by fire or theft. Some insurers offer an extra clause called an uninsured motorists’ extension, which will repair property if it is damaged by someone uninsured.
Underwriter
Person or institution who or which agrees to take up a proportion of the risk of something.
Glossary provided with assistance of Allianz Australia Insurance Ltd
Resources
The Insurance Ombudsman Service is an independent national dispute resolution body approved by ASIC. It assists in resolving disputes between consumers and insurers and provides general information about insurance matters. The service is free of charge, but a $150 fee applies to disputes which relate to third party claims.
Go there
Ph 1300 780808
The Life Insurances Complaints Service considers superannuation-related enquiries from policy holders of life insurance companies.
Phone 1800 335 405 (free call)
The Insurance Council of Australia is the industry association for general insurance companies in Australia. The website lists all member companies with contact details, including phone numbers and hotlinks to their websites.
Go there
Ph (02) 9253 5100
The National Insurance Brokers Association of Australia (NIBA) is the national professional association for insurance brokers. It offers consumer advice, can help you find a broker, or mediate a dispute. The website is particularly good for those interested in learning more about business insurance.
Go there
Ph (02) 9964 9400
The Private Health Insurance Administration Council (PHIAC) is an independent Statutory Authority that regulates the private health insurance industry and collects and disseminates information about private health insurance to enable consumers to make informed choices.
Go there
Ph (02) 6215 7900
The Private Health Insurance Ombudsman (PHIO) provides an independent service to help consumers with health insurance problems, complaints and enquires.
Go there
Ph 1800 640 695
The Australian Health Insurance Association (AHIA) is an industry association covering more than 94% of the private health insurance industry. The website lists all 26 health insurance members’ phone numbers and hotlinks to their websites.
Go there
Ph (02) 6285 2977
The Investment and Financial Services Association Limited (IFSA) is a national not-for-profit organisation representing retail and wholesale funds management and the life insurance industry. Life insurance facts sheets are available from the website.
Go there
Ph (02) 9299 3022
FIDO is the consumer website of the Australian Securities and Investments Commission (ASIC). ASIC is the consumer protection regulator for financial services. It protects investors, superannuants, depositors and insurance policy holders.
Go there
Ph 1300 300 630
The Insurance Brokers Disputes Limited (IBD) helps retail clients to quickly resolve disputes with insurance brokers in relation to certain general and life insurance products.
Go there
Ph 1300 780 808
The Australian Consumers’ Association, publisher of Choice magazines, website and books, is an independent, not-for-profit organisation which has been researching and campaigning on behalf of consumers since 1959.
Go there
Ph (02) 9577 3333
There is an Office of Fair Trading in every State or Territory. They help consumers and businesses become aware of their rights and responsibilities as a consumer or trader, through access to advisory services, public information programs, and magazines and brochures. A list of all State and Territory contact numbers is available at the Australian Competition and Consumer Commission (ACCC) website address below.
Go there
