Inflation – we are all living it! We don’t need to hear about it on the news – it is the new reality for all New Zealanders.
And then the dreaded anniversary letter arrives from your insurer advising that your premiums have increased …. arghhh!
Let’s just take a step back and look at the factors that impact on those premium increases –
The benefit is generally indexed to inflation so each year the sum insured increases. As such the premium increases to cover the higher level of cover.
- You are now a year older – you therefore represent greater risk to the insurer. Bearing in mind that the increase in risk is minimal when you are in your 20’s and 30’s but once you advance into your 40’s and 50’s the rate of risk increases at a greater rate …. And so too do the premiums.
- The insurers actual costs of doing business may increase – as with any business this could be an increased wage bill, rent, compliance and of course claims.
So how can you manage this?
- Review your insurances each year with an adviser – be sure that the cover you have in place is in fact what you need. Often, I meet with clients in their 50’s who have not reviewed their insurances for many years – the levels of cover are no longer required – kids have left home, debt has gone down, other investments have grown. All of these factors can impact on the cover you require.
Some of the steps we have taken to assist clients: –
- Put in place higher excesses on private health insurance.
- Amend an income protection policy so that you have either a longer stand down period, a shorter benefit period or a reduced sum of cover OR a combination of the 3. Don’t just cancel the policy – you may be at the very point in your life where you are more likely to need it.
- If there are loadings on your policy – these may not apply any longer if your health has improved. (However, if your health has deteriorated then the cover you already have is very valuable.)
- Consider what the market is offering – your current provider may be competitive and the premiums you are paying reflect the risk you pose to an insurer OR they may no longer be competitive.
- Consider having some of your cover on a level premium – this ensures affordability of premiums at the very time you need be. Work with an adviser to understand if this level contract is guaranteed for the life of the policy and what exactly it may save you over the long term, and most importantly if this structure is right for your circumstances.
- Mitigate your risks by self-insuring – have an emergency fund to cover longer stand down periods on income protection policies, higher excesses on health insurance, being able to cover certain medical costs out of cash flow.
- Work with financial advisers to reduce debt and grow other assets – this gives you the option to reduce insurances at the very time they become more expensive.
So, when that anniversary letter arrives, get a coffee (that now costs $5.50 rather than $4.50) or make a cup of tea; think about when you last reviewed your insurances and give us a call if you think you need to do so now!
We are always happy to help.
Call Lynda Taylor – MFAS risk expert on 0800 379 325