Insurance Made Easy


Is your life insurance policy a thoroughbred, or a donkey?



Personal insurance covers are not created equal.

It might be tempting to assume that the life, trauma, mortgage repayment, income protection or total permanent disablement policies offered by New Zealand insurers are all much of a muchness.  However, nothing could be further from the truth.

Why is this?  

A major reason is that the insurance market is in the throes of being given a really good shake by the entry into the market of an innovative new player in 2010 (Partners Life).  Personal insurance covers  are in a process of transformation as the bar is progressively raised by increased competition and policy innovation.  This is great news for the consumer – but it also means the consumer needs to know which policies are the thoroughbreds and which are the donkeys!

Life Cover
Take plain life cover for example.  It pays a lump sum to the policy owner(s) in the event that the person insured dies or is diagnosed with a terminal illness which, in the opinion of an appropriate specialist, will lead to death in less than 12 months.  This is standard life cover.

Most life covers in the market incorporate a variety of additional benefits which are included in the cover at no extra cost: one such benefit is the Special Events Increase Benefit.  This permits the policy owner(s) to apply to increase the life cover sum insured without further assessment of health should the person insured experience any of a number of special life events (eg marriage or civil union; divorce; birth of a child; increasing an existing residential mortgage; purchasing a new home etc).  This is where the life covers offered by various insurers start to show considerable differences.

Some insurers provide an extensive list of special events that permit this benefit to be triggered, while others allow substantially restricted circumstances.  Furthermore, the amount by which the life cover can be increased under this benefit varies considerably between insurers:  some are considerably more generous with regard to the increase they will permit.  

Lastly, to make matters worse, life covers available from most of the trading banks do not include a Special Events Increase Benefit, and the limited trading banks that do offer it have substantially inferior terms compared with the best in the market.

Trauma, Mortgage Protection and Income Protection Covers

When one considers trauma, mortgage protection and income covers, the differences between the best in the market and the rest become even more marked.  Independent research by insurance policy specialist firm Quality Product Research Limited, shows that the lowest ranking policies may be rated at 50-60% (or less) of the quality of the top-ranked policy, based on the conditions/situations covered, features of the cover, policy definitions, and actuarial likelihood of a claim etc.  

Let’s consider Mortgage Protection and Income Protection Covers – collectively referred to a “disability covers.”  These are covers that provide a financial safety net should the person insured suffer a disability which limits their ability to earn their normal income. The monthly benefit is payable after the chosen wait period has passed, and continues until the insured individual is able to resume work or the chosen benefit payment period expires.  This is where some major differences in policy quality emerge.

The best covers in the market (Partners Life) provide a monthly benefit payment for:

•    both total and partial disability, whereas many other insurers do not include a partial disability benefit;
•    an additional lump-sum payment for total permanent disablement of 24 times the monthly benefit, in the event that while on claim, it becomes apparent that the person insured will never be able return to work again; most other insurers do not offer this additional lump-sum benefit.

Other factors to be aware of are:

•    some insurers pay the Mortgage or Income Protection benefit monthly in advance after the wait period has passed; others pay monthly in arrears, meaning that an 8-week wait period effectively becomes a 12-week wait period!  Is this fair, or a trap for the unwary?
•    your mortgage commitments and income can change over time, and each time such an event occurs there may be a financial need to increase your Mortgage Protection Cover and/or Income Protection Cover to keep pace.  One insurer recognises this by permitting you to increase your Mortgage Protection Cover or your Income Protection Cover without further health assessment, whenever your mortgage and/or income increase.

The best covers in the market incorporate substantially more benefits in their policies than the average or lowest ranking policies.  It therefore makes sense for anyone seeking insurance to ensure they seek advice from an insurance risk specialist to identify the most advantageous policies.

All insurers have their specific “sweet spots” – it’s the job of an insurance specialist to find the best “sweet spot” for you in terms of the type, quality and level of cover that meets your needs, at the most competitive premium.  This will help ensure that the insurance policies you use to protect yourself, your family and your business are thoroughbreds, not donkeys!


Theo Simeonidis
FNZIM, B.For.Sc (Hons), MPP
Registered Financial Adviser
UProtectNZ Insurance Services
Providing security and peace of mind for you, your family and your business

What is your most valuable asset? The answer may surprise you!

While many people focus on getting ahead and increasing their asset base, we often give little regard to protecting what we already have.  We don’t hesitate to insure our house, our car or boat, but often neglect insuring what is effectively our most valuable asset – ourselves, our health and our ability to earn income.

 

Your three main assets worth protecting are your home, your income and your health.  It only takes one small hole in your protection plan to lose your assets.  But protection is also a balancing of likely risk vs. acceptable cost.  For this reason it is important to work with a respected insurance specialist to identify the best option to provide security and peace of mind for you, your family and your business.

 

Still unsure?  Then consider the following factual information, based on actual claims history.

 

For every ONE home lost by fire…..

 

…. FOUR are lost through death….. as a result of  being unable to keep up the mortgage repayments  following the death of an income earner…                                      

                                               

…. but FORTY-EIGHT homes are subject to mortgagee sale and lost as a result of disability of an income earner and being unable to keep up the mortgage repayments.[1]

 

It seems ironic that many people recognise the importance of insuring house, contents and car to cover the possible event of loss, damage or theft, but are prepared to risk everything by not having adequate cover to ensure that their mortgage and ongoing household expenses can be met should they be incapacitated for an extended period of time.

 

Why so many people play Russian roulette with their welfare and that of their families and their businesses is way beyond me.  It doesn’t take a lot of effort to put in place a suitable layer of protection, at reasonable cost, that will provide security and peace of mind for you, your family and your business.



[1] Source:  CommInsure (Commonwealth Bank of Australia) Claims Experience 2010

 


Exploring under-insurance in New Zealand

Having a contingency plan in place for those tough financial times that may arise owing to sickness, accident or losing a loved one, is one of the smartest and wisest decisions you will ever make. 

Yet a 2011 comprehensive research study1 shows that there is a high level of under-insurance in New Zealand as "levels of of cover do not correspond to actual financial vulnerability."  The study also showed that a significant issue in New Zealand is the low levels of ownership of personal insurance around permanent disability, such as total permanent disablement and long-term income protection cover.

Contrary to popular belief, one's most valuable asset is the ability to be able to earn income.  For example, take a person aged 40 on a salary of $60,000 per year and with 25 years'
(or more) income-earning ahead of them:  that multiplies out to $1.5 million!  And remember that that figure is very conservative, when you consider that one's annual income can be expected to grow over time so the real figure for future lifetime income will be substantially higher.

There are some exceptional products in the personal insurance market that take account of peoples' different circumstances, needs, exposures and preferences.  But it can all be a bit confusing and scary, so having a sound insurance adviser to work with you to explain your options in simple language is always an advantage.
  

All insurance companies have their specific "sweet spots" - it's our job to find the best "sweet spot" for you, both in terms of the quality of cover and cost.

Theo Simeonidis
UProtectNZ Insurance Services
4/79 Schnapper Rock Road
Auckland 0632
Ph: 09 528 8724
Mob: 027 248 9320
Email:  theo@uprotectnz.com

Unravelling the Mysteries of ACC (Part 1):
Options for the self-employed to reduce their ACC levies

Someone once said that there are only two things in life that are certain:  taxes and death!  I disagree - I would add ACC levies to that!  No one can escape the long arm of the IRD and ACC! 

 

Whether we think that New Zealand’s ACC regime is the best thing since sliced bread, or otherwise, the fact is that everyone pays ACC levies in some form or other.  And the sad fact is that ACC is a rather expensive form of insurance.

 

So what can you do, if you are self-employed, to reduce your ACC levies while securing a more comprehensive level of personal cover and benefits?

 

Well firstly, let me summarise a few things about the regime for ACC levies for businesses:

 

1. Individuals who are self-employed, in partnerships or are non-PAYE shareholder employees of a company will normally be placed onto the ACC default cover, ACC CoverPlus.  This is the standard cover that most people are familiar with.  It can pay for the cost of treatment and rehabilitation and, where relevant, compensation of 80% of lost earnings.

 

2.  In addition, there is another ACC cover called CoverPlus Extra.  This cover can be taken out in place of the default CoverPlus and enables self-employed people and non-PAYE shareholder employees to negotiate an agreed level of weekly lost earnings compensation, as well as being entitled to treatment and rehabilitation costs covered by ACC.  Those on COVERPLUS EXTRA receive 100% of this agreed compensation if they can’t work because of injury.

 

3.  Under CoverPlus, an injured person needs to prove at claim time that the business has suffered financial loss as a result of the individual being incapacitated.  Under CoverPlus Extra they don’t have to prove loss of earnings when they make a claim. 

 

4.  Where, for example, a couple operate a trades business such as plumbing and the couple split their income - one doing the plumbing and the other the administration - BOTH would be classified under the higher-levied Pumbing Services classification ($3.31 per $1,000).  However, with CoverPlus Extra they could also lower their ACC levies by re-classifying the one doing the administration work under Office Administrative Services ($0.28 per $1,000).  This can create big savings in ACC levies.

 

5.  By reducing, under CoverPlus Extra, the negotiated amount of injury cover that a self-employed person would receive, considerable savings can be made in ACC levies.  Some or all of those savings can then be applied towards private mortgage or income protection covers, trauma (critical illness) or total permanent disablement insurances. 

The net result is that one can achieve a substantially more comprehensive cover against illness and accident than from ACC cover alone, which is only for injuries by accident.  As I said earlier, ACC is an expensive form of insurance.

 

One other issue is always important with regard to both types of ACC covers - this is the prospect for dispute by ACC that an injury is in fact assessed to be a result of a degenerative condition rather than accident.  ACC will not pay for injuries considered to be the result of degeneration.  This stresses the importance of having private insurance cover in place to complement the protection offered by ACC.

 

SUMMARY

ACC’s CoverPlus Extra offers self-employed the option to:

-          renegotiate their agreed level of weekly ACC compensation down to a suitable agreed value;

-          reduce their ACC levies in numerous ways not available under the standard CoverPlus cover;

-          secure more comprehensive private insurance cover that provides protection against illness and accident, often at no extra cost to what the ACC levies were previously;

-          avoid having to prove loss of earnings when they make a claim.

 

ACC CoverPlus Extra is available to all self-employed and non-PAYE shareholder employees who work 30 hours or more per week – and to part-timers whose earnings exceed the CoverPlus Extra minimum – which changes each year, and is presently $26,520.00 per annum.


Theo Simeonidis

UProtectNZ Insurance Services

Ph:  09 528 8724

Mob:  027 248 9320

Email:  theo@uprotectnz.com