If you are like us you may have seen the TV ads lately asking us if we are going to be an April Fool in regards to our private health insurance premiums.
What they are constantly reminding us is that, as of 1st April, our health insurance premiums go up again.
Last year, premiums went up on average by 6.2% (and as high as 18%!) As a result of this, half a million Australians dropped or downgraded their policies according to Department of Health.
That is a massive drop.
Clearly, it is obvious people feel the importance of taking out this insurance at some point. But it is then a scary reality that so many move on to cancel this insurance due to the premiums just pushing their budget beyond reasonable.
This is where private health insurance and personal insurances, like Life, Disability, Trauma and Income Protection, differ.
Currently, private health insurance premiums are based on your age and the level of cover you are after. The premiums you pay are not relevant to your health status whatever. You could be a smoker, overweight with a family history of illnesses and you still pay the same premium as the person next door the same age.
Your premiums just continue to get higher and higher each year as there is an assumption your risk of claiming gets higher as you get older.
With personal insurances, this can (and I’ll say ‘can’, not ‘is’ because it can also vary enormously!) be very different.
When you apply for a personal insurance policy you (should) be assessed based on your health, your medical history and your family’s medical history.
What this means is that the insurance company decides at the time of your application, what your premium should be based on your health, history and family history.
This means that someone who has a higher risk of making a claim against their insurance (due to their health or their family history) pays higher premiums than someone who has a clean bill of health.
As we are just about to see again, private health cover premiums also increase every year on 1st April. As mentioned about, this very often makes the premiums not affordable and when the cover could be most helpful, could be cancelled due to affordability.
The awesome thing with personal insurance policies is that once you are assessed when you apply for your cover you have the option of locking these premiums in for the life of the policy.
From a budgeting/personal cash flow perspective this has the benefits of locking your personal insurance costs into your budget and knowing it won’t increase to ridiculous amounts each year.
But there is BIG warning that comes with this; not all insurance policies will be set up this way. The feature above is referred to as ‘level’ premiums. They stay level for the life of your policy.
You can also have what is called ‘stepped’ premiums.
Stepped premiums work similar to your health insurance premium’s where they will get higher and higher each year. They may start off cheaper than the ‘level’ option, but over the long term the difference is massive.
Below is an illustration which shows the difference between the stepped and level premiums for a personal insurance policy.
Being on ‘stepped’ premiums can also have a similar effect where the cost of the policy can become ridiculously expensive as you get older. Similar to private health cover, people often cancel their cover as it gets too expensive. The uncanny part is that this is where you could be most likely to NEED the policy!
So this may all sound quite daunting and I understand why so many throw insurance into the ‘too hard basket’.
This is where we can help. As part of our advice process we can determine what insurance policies you currently have, and what features they have. Importantly, we then determine what you need based on your current circumstances and what is important to you in life.
Comparing apples with apples can be extremely difficult in this market. And we are reasonably confident it’s not something you are jumping out of your skin with excitement to do yourself.
If you don’t want to be an April Fool, contact us to make an initial appointment and we can help you get back to spending time on the things you love to do in life.
*Roha Pty Ltd, As Trustee for The Tyrell Family Trust, Trading As: Vivid Accountants & Advisers, ABN 25 146 761 364 is an Authorised Representative of Count Financial Limited. Bronwyn Tyrell is also an Authorised Representative of Count; Authorised Representative Number: 288117.
‘Count’ and Count Wealth Accountants® are trading names of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. www.count.com.au
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