If the rising cost of living has you reviewing your spending and your personal insurance policies are on the chopping block, may we suggest you take a moment and give us a call before you cancel. We’re not about talking you out of it, it’s more about talking you through it so you have the information you need to make decisions that are right for you.
In this article, we explore personal insurance cover and why it’s so important, especially in the middle years of your life.
The interesting thing about general house and car insurance is that many people consider it essential and readily commit to their premium. Perhaps it’s because they can imagine the inconvenience of a burglary or their car being damaged and out of action.
Yet when it comes to accidents, serious illness and death they often not quite as willing. Perhaps and understandably they think or hope, it’ll never happen to me.
Unfortunately, accidents and illness do happen and usually the consequences are considerably more concerning and far reaching than a bit of inconvenience.
Of course, there is never a good time to get sick or die, but during the middle years of life when life is at a crescendo of career, family, home loans and responsibilities that often extend to caring for ageing parents, the financial consequences can be enormous.
Firstly, it’s necessary to clarify the problem. Is your insurance premium really the cause of your cashflow crisis or is it one of a range of expenses that need addressing?
Personal insurance should be considered part of your overall financial plan, rather than separate from it.
Typically, the middle years of life are defined by debt and dependants, and it can be a time when your savings may be limited and current debt levels mean access to other forms of finance for funding obligations in an emergency simply aren’t available.
Ultimately, if affordability is an issue something has to give.
Big picture financial planning considers personal cashflow and affordability, and no reputable financial planner would recommend any product or service that is not appropriate or financially sustainable for a client’s circumstances.
We meet regularly with our clients and insurance is always an agenda topic and this includes discussions about the cost of premiums and changes in circumstances that may affect insurance and lifestyle requirements.
It’s important to know, should you decide on the spur of the moment to cancel your insurance cover in an effort to reduce your expenses, it may not be possible to turn that cover back on.
Unless a policy is genuinely cancelled in error, insurers rarely reinstate cancelled policies. Instead, the application process must start again and the success of the new application will be reliant upon your circumstances now.
Age will be a factor, as the older you get insurers will consider you to be more you are at risk of a claim event and that will affect the premium price and cover benefits on offer.
For some people, reapplying for insurance reveals health issues they didn’t have the first time around, which may result in the new cover being declined, benefits excluded or if those benefits are necessary, a health loading added to the premium.
As was the case during COVID, people who find themselves temporarily out of work or in financial distress, can temporarily suspend their personal insurance, rather than face the finality of cancelling.
There are of course conditions around suspending insurance and it may include providing evidence of financial hardship or loss of employment.
It’s also important to understand, while a suspended insurance policy will mean the premium payments will stop, so too will your cover and opportunity to claim should you fall ill or pass away during the suspended time frame.
The main benefit of suspending rather than cancelling is that once the premium payments recommence, the policy and its original conditions are reinstated.
It may also be possible to reduce your insurance premium cost by amending the policy benefits or the cover amount.
For example, you may be able to comfortably cover any immediate medical costs for a defined period of time, perhaps two or three months. This may reduce the overall cover amount and in turn reduce the monthly or annual premium you are required to pay.
It also worth noting insurance companies are competitive.
They aim is to keep their customers for the long haul, and they are often open to negotiating terms especially on special insurance requirements that may reduce premium amounts to keep the policy in place. Of course, changing insurers is also an option which has some challenges, but it may be possible to match benefits for a lesser premium cost.
Personal insurance is important and for most people it sits quietly in the background providing peace of mind that a financial safety net is in place when things don’t go to plan.
When cost of living rises and cashflow tightens, it’s natural to want to cut back on expenses. However, as we’ve indicated here, it’s important to consider the consequences of cancelling services such as personal insurance and to be clear on whether it or the other items you’re cutting back on, actually provide a solution or if it potentially creates a bigger problem.
If you would like to know more about personal insurance, financial planning and managing your personal cashflow, please give us a call. Please contact Matt Lane or Alec Winter on 07 3720 1299 or email admin@wealthfundamentals.com.au
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances. This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.