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One of the great uses of Life Insurance is to provide for our families when debt is high, and children are young. To some degree the need for life cover decreases as we get older.
If the above is the case the need for Life Insurance may have reduced. There’s still a need to cover final expenses and funeral costs on death. (Of course, if you own a business, you may still be borrowing even in semi-retirement, in that case the need for life cover remains.) One strategy is to have what is known as level premium on at least some of your life cover. This means you pay a bit more now, but the premium remains the same and does not increase each year, right through to the age you have chosen. You can have level premium right though to age 100 if you want! (Most people choose say, age 80, as the longer the term the higher the overall cost) The above is a brief and general picture only. If you want to discuss your specific circumstances, please don’t hesitate to be in touch. A bit of a deviation form Health and Safety this week. But important information, nevertheless.
You are most likely aware of changes to the Privacy Act. Often when a change like this happens we wonder how it will impact our business. I know I do. If you would like to put in place a simple, tailored Privacy Policy for your firm, have a look here (control click or copy and paste ) : https://privacy.org.nz/tools/privacy-statement-generator/ It literally will only take 5 minutes to complete the gaps and put together a Privacy Statement for your business. (I had to copy and paste the finished document to a word document to print out and save). A claim on a policy is the most important event in the life of that policy. It should pay the right amount of money to the right people (or person) at the right time. If it doesn’t, it hasn’t fulfilled its purpose.
So how do you make sure this happens? It starts with the initial discussion with your adviser. Make sure : 1) He/she is a registered adviser and either has qualification or has been in the insurance industry for some time. You want advice based on knowledge and experience. 2) Be open about your financial affairs. Most likely the adviser will provide you with a “Scope of Service”. Following discussion with you, this will confirm what service you are expecting. Eg. Recommendations on what sort of cover you should have. What amount of cover you should have, a comparison of product quality or premium cost with other insurers etc. A while after that you should receive from your adviser a written “Statement of Advice”. This outlines his/her recommendations and the rationale behind the recommendations. 3) When the amount and type of cover is decided upon, the application to the insurer can be started. It’s essential that all information about your health, occupation and any hazardous pastimes is included. Sometimes claims are voided because something material about health has been left out. If in doubt, put it in. (Note: Insurers are in the business of paying claims. They do not void a claim lightly) 4) Once the application has been assessed by the insurer, you will receive what’s known as an “Offer of Terms” from the insurer. This outlines whether the insurer will accept the risk. If so, will there be any exclusions? Will there be an extra premium because of health, occupation or hazardous pastimes? Read these carefully. Your adviser will go over them with you, but the ultimate responsibly is yours. 5) Claim time can be a stressful. You are already under pressure with sickness or handling the affairs of a deceased loved one. A good Adviser will handle the detail of the claim for you. The forms required by the insurer. Are medical requirements needing to be satisfied? Your Adviser should organise and make the process as stress free as possible. I trust that’s been of use. I am sure you are aware there many different types of personal insurance. After Life Cover perhaps the most common type of cover is Trauma, also known as Critical illness cover.
This pays a lump sum to the insured person for major illnesses that are covered under the policy. The policy wording actually specifies what conditions are covered and the level of severity of that illness to see a payout made. For example. How severe does the heart attack need to be to see the payout? Or what types of cancer are covered? Although the main insurance providers in NZ are similar in definition there are some differences worth looking at. The main providers cover around 40 different conditions. However 85% of all claims are for Cancer (over 50% of all claims) then heart attack, stroke and coronary bypass. I usually recommend that the amount of cover should be between 18 months to 3 years of your income. (Depending on budget) So if you are earning say $60,000 a year, the cover amount to consider: Between $90,000 and $180,000. The money can be used to supplement income over a period while the insured is recovering, or any other purpose. Reduce debt, get treatment or medications not covered under our health system or simply go on a holiday. Anything at all. Trust that’s of help! A couple of weeks ago we sent out a survey. Here's a couple of responses that you may find of interest.
• When it comes to the purchase of product of any sort, 81% of people said that they consider quality and price (as opposed to just price). • 71% of people said, when it comes to insurance, the prefer to deal with a broker or adviser (as opposed to dealing directly with the insurer). Quality: We use an Independent Industry Recognised Research House when recommending on Insurance Product Quality (largely to do with policy wording, which is important at claim time). Price: Remember as a family business, with low over heads, we will not be beaten on price. There’s a lot of people putting private health insurance in place currently.
The main reasons are 2 fold. 1)There can be quite a long wait for some procedures in the public system. 2)There are some medications that are not funded by the public health system, that are very expensive and for some people very effective. Cancer affects the lives of far too many Kiwi’s and cancer is the leading cause of death in New Zealand. With a private health insurance policy, you can be treated for cancer in a private hospital by your choice of doctor. Cancer care is usually included in a Major Policy, and will typically cover treatments like chemotherapy, radiotherapy, surgery, hormone therapy, psychological counselling and alternative treatments like acupuncture. Non-PHARMAC Drugs Having medical cover that provides non PHARMAC cover can be beneficial when Medsafe has approved the drug as safe, but PHARMAC does not provide funding. Cancer drugs can be prohibitively expensive without PHARMAC funding. Here’s Christine Manins story, as reported in North South Magazine Christine Manins is buying time. It costs her more than $5000 a month. "She was 44, and her children were nine and 11, when she was diagnosed with breast cancer in 2004. The nearly $300,000 she’s spent on unfunded cancer drugs at various times over the past six years has allowed her to see her children grow up. It’s given them their mum. “It’s the most wonderful feeling – it’s the gift I’ve given them. If and when I die, I’m okay with it now, because my children have had a mother. They’ll miss me, and it would be nice if I could be around, but they’ve grown up.” While Manins is sanguine about the financial sacrifice, she’s upset that had she lived in Australia, where everolimus – one of the drugs she has paid for – is funded, she’d be almost $200,000 better off. “I didn’t realise you didn’t get drugs like Australia did. I thought if Australia got it, we’d get it. I really think people should understand that if you get cancer, you cannot expect best treatment in this country.” When everolimus (marketed as Afinitor) stopped working for her in 2016, she switched to palbociclib (Ibrance), a new treatment that is not yet funded in Australia, either. She paid $70,000 for the first seven months of treatment in 2017, before the price dropped to around $5000 a month" Let me know if you would like further information on Private Health Insurance I thought you might be interested in a newsletter extract from the KiwiSaver provider we use for our clients.
It’s not a big part of what we do (we have around 65 KiwiSaver clients out of a total active client base of some 350) However, it is a growing part of what we help clients with. (More people are becoming actively interested in their retirement provisions). If you are dissatisfied with your current KiwiSaver provider, send me back an email and I will be in touch to outline what Generate could possibly do for you. (No obligation of course). Extracts from May’s Generate KiwiSaver newsletter: Facebook was a standout performer over April returning 22.7% in local currency terms. Facebook found favour with investors over the month as varying forms of lockdown policies around the world drove higher social media usage amidst a surge towards online gatherings and communications. Alongside this, sat a counter view Facebook’s advertising revenue may come under pressure as companies reduced marketing budgets. Reflecting similar sentiment to that shown towards Facebook was Alphabet, the parent company of Google which returned +15.9% in local terms last month. Other notable mentions were Microsoft which was up 13.6% and Siemens AG which returned 11% in April. Berkshire Hathaway was somewhat off the pace as they carry more direct exposure to cyclical aspects of the economy, but still returned a positive 2.5%. We continue to think Berkshire is being undervalued by the market. Property Turning to Property and Infrastructure, and after an uncomfortable month in March there was a strong bounce back in share prices. Auckland Airport (AIA) returned 22% over the month, which included the successful equity capital raise of $1.2bn at a price of $4.66 per share. Notwithstanding the fact that travel will face difficult months to come, purchasing a recapitalised AIA at a steep discount to recent valuations proved attractive A second standout was our long-held position in Infratil (IFT) which returned 17.6%. A key detractor from P&I performance was Precinct (-6.7%). Precinct owns office assets in Wellington and Auckland including the soon to be completed Commercial Bay tower and retail precinct. The office sector has come under the spotlight as cities across the globe entered various forms of lockdown and work from home situations. As a result, some market participants, including the investment team at Generate, are pondering what office demand may look like in the future and whether there may be a structural shift in work methods resulting in lower demand for office space. A2 Milk Also worthy of a mention is A2 Milk, which we discussed in last month’s newsletter. A2 continued its strong performance from March into April returning 14.2%. Additionally, our recently established position in Vector rose 11.4%, and Aventus bounced following March’s difficulties, rising 15%. We discuss Vector more fulsomely in our Stock Spotlight section below. I am sure you are aware there many different types of personal insurance. After Life Cover perhaps the most common type of cover is Trauma, also known as Critical illness cover.
This pays a lump sum to the insured person for major illnesses that are covered under the policy. The policy wording actually specifies what conditions are covered and the level of severity of that illness to see a payout made. For example. How severe does the heart attack need to be to see the payout? Or what types of cancer are covered? Although the main insurance providers in NZ are similar in definition there are some differences worth looking at. The main providers cover around 40 different conditions. However 85% of all claims are for Cancer (over 50% of all claims) then heart attack, stroke and coronary bypass. I usually recommend that the amount of cover should be between 18 months to 3 years of your income. (Depending on budget) So if you are earning say $60,000 a year, the cover amount to consider: Between $90,000 and $180,000. The money can be used to supplement income over a period while the insured is recovering, or any other purpose. Reduce debt, get treatment or medications not covered under our health system or simply go on a holiday. Anything at all. Trust that’s of help, There been some interesting changes insurance wise, this side of lockdown.
It’s not so much any increase in medical risk that have brought about the changes. Its more the uncertainty of the economy. This causing uncertainly around some individual incomes and business income. The biggest change is around new income protection and new business loss of revenue type cover. (This is where an individual or their business is paid a monthly amount, if the insured individual can't work due to illness or injury). Before lockdown it was usual for the insured amount (the monthly claim amount) to be what’s called “Agreed”. This means at claim time there is no need to prove the individual’s income or business income, prior to the claim. Currently I can’t find any insurer who will provide Agreed Value products, for new clients or even an increase in cover for existing clients So, if you have one of these (and many of the income covers I have put in place in the past have been Agreed Value) don’t let it go. It may be a long time before you can get it back, if you do let it go. Another change is sensitivity toward mental illness, depression, anxiety etc. Insurers are wanting to know more around how new applicants for insurance “are going” in this regard. Will things revert to the “norm”? Maybe, with the passing of time. In the meantime, think carefully before cancelling or changing your cover. Especially Income Protection type cover. Want to discuss it further? Email me or give a ring. I’m always up for a chat. |
I specialise in advice for individuals, families and small to medium size business owners.
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