Should you prepay private health insurance?

Is your income above $84,000 as a single, or combined income above $168,000 as a couple? Do you also have private health insurance?

Then you should consider this opportunity before 30th June.

Effective 1st July this year (2012) the Federal Government is reducing the private health insurance rebate for singles earning above $84,000 and for couples earning above $168,000 (combined). The new rebate amounts are shown in the below table.

Income thresholds

Private health insurance rebate

Single

Couple

Under 65

65-69

70+

Less than $84,000

Less than $168,000

30%

35%

40%

$84,001 to $97,000

$168,001 to $194,000

20%

25%

30%

$97,001 to $130,000

$194,001 to $260,000

10%

15%

20%

$130,001 and above

$260,001 and above

0%

0%

0%

Many people pay their private health insurance premiums monthly and have the rebate automatically applied by the fund.

If you continue this way then from July 2012 your private health insurance premium will increase (when the rebate decreases).

Pre-pay your health insurance premium and save

However, if you prepay a year’s premium before 30th June then you will still be eligible for the current rebate of 30%.

Estimate your saving now with this spread sheet tool.

An example of what you could save

Let’s say your a young couple with a combined income of $200,000 per year.

You call your private health insurer and they advise your current premium is $3,000 if you pay annually. This is after the current 30% rebate is applied, meaning the Government has already tipped in $1,286. (i.e. the actual total premium is $4,286.)

From 1st July your rebate will drop from 30% to 10%, meaning the Government will now only tip in $428. That means your premium will jump from $3,000 up to $3,858 per year.

If you pre-pay one year’s premium before 30th June 2012 you will only pay the $3,000 and effectively save yourself $858.

That’s a pretty good return.

Crunch your own numbers

I’ve created a spread sheet with the calculation to help you decide if it is worth you prepaying your private health insurance based on your own situation. Download the spread sheet here.

Finer details

What’s the potential downside?

The legislation, as originally written, is imprecise in how the rebate applies when it comes to the timing of premium payment and the period of cover. So, by implementing this strategy you are taking the chance that what matters is when you made the premium payment. This is similar to the current situation with the prepayment of other deductible expenses, for example income protection insurance premiums and interest on investment loans.

Therefore, to manage this potential downside it’s probably a good idea to choose to take the rebate as an offset at the time you make your premium payment. Waiting to claim the rebate at the time you submit your tax return adds an extra level of risk.

Clearly this consequence of the legislation was not intended by the Government. So there is a risk they may decide to amend the laws and back-date the changes (which they can do). If they do that then you may owe them the difference in the rebate.

If the Government does change the law then your downside is the opportunity cost of having prepaid some of your expenses. Keep in mind here that I’ve written this article for those who have already decided they want private health insurance.

As always, remember this free article is general information only and not personal advice. You must work out what is right for you in your situation and take responsibility for the outcomes of that decision.

Is it worth borrowing money to prepay by 30th June?

I know that many people unfortunately don’t have the savings sitting around to suddenly prepay a year’s premium. So the obvious question is “should I borrow?” In this case you may be borrowing by redrawing from your mortgage.

I’ve included a calculation in the spread sheet to help you make this decision for yourself.

If you do choose to borrow then you must redirect your usual monthly insurance premium payment to repaying the borrowed amount within 12 months. Otherwise you’ll eat up savings with the loan interest.

Another benefit

One other hidden benefit of prepaying your premium for a year is that you may also beat the usual annual health insurance premium rise in April 2013.

Please share

If you found this free tip of benefit please e-mail a link to this article to your high earning friends and family who may benefit. Thanks 🙂

 

Freedom to be by their side with Children’s Trauma Insurance

Parents – please resist the natural urge to avoid this article because you don’t want to think about the topic. The tool I share below could save you considerable stress if misfortune strikes your family.

What would you do if your child suddenly and unexpectedly became seriously ill?

If something happened to Sophie or Isaac I would want my wife and I to be able to quit work immediately and be by their side, full–time.

I wouldn’t want one of us to have to work just to ensure the mortgage and bills get paid.

I wouldn’t want to be dependent upon the generosity of family, friends and the community to get by.

I would want to be able to afford top health care.

I would want to stay in our home. The comfort and familiarity will be an essential aid to recovery, for us and the ill child. Moving home is an added stress we won’t want.

But with most families dependent on their income, where will the money come from to provide the freedom to make those choices?

Introducing children’s critical illness (trauma) insurance

Children’s critical illness insurance is also known as children’s trauma insurance.

Child critical illness insurance pays you (the parent or guardian) a lump-sum on the occurrence of one of a number of conditions, similar to how your own critical illness (trauma) policy operates. You choose how to use the lump-sum.

What’s covered?

Most policies cover over 20 different illnesses including the ones you’d commonly think of such as:

  • Cancer
  • Paralysis, including paraplegia and quadriplegia
  • Loss of limbs
  • Blindness, deafness or loss of speech
  • Severe burns
  • Coma
  • Death and terminal illness

As with all insurance if the severity of the illness meets the policy criteria then you will be paid a benefit. With these policies the benefit will be paid as a lump-sum.

How do you get children’s critical illness insurance?

Child critical illness insurance is an optional add-on to the parent’s insurance policy. It can be an option to life, TPD or trauma insurance. So even if you don’t have your own trauma insurance policy you may be able to add child trauma insurance to your death or TPD policy.

Usually the child needs to be at least 2 years of age before you can add them to your policy, though I’ve seen policies with entry ages up to age 5. Even if your child is not yet that old when you buy your policy you can add the child trauma option when they are old enough (which is exactly what I did for my two children.)

Many policies are now offering maximum cover up to $200,000.

How much does it cost?

Premiums range between $200 and $300 per year per child for the sum insured of $200,000. You can choose to insure for a lower amount to fit within your budget.

At around $5 per week per child I consider that value-for-money peace of mind. Much more valuable than my car insurance.

Why you should consider children’s critical illness insurance

It doesn’t matter if you believe the likelihood of serious illness is low. The life and financial consequence to your family would be severe.

It is the severity of the consequence that makes the risk high enough to warrant managing the risk through insurance.

Get the protection then get on with enjoying your family time with peace of mind.

Women: a great little reminder from a hot guy

And after you’ve finished checking your breasts check if you have protection from the financial consequences of a serious illness like breast cancer.

The key tool is trauma insurance, which pays you a lump sum on diagnosis.

You can use the lump sum to:

  • Help fund out-of-pocket costs for medical treatment
  • Give your partner time off work to be with you knowing you can keep food on the table
  • Take time off work to smell the roses
Call me today to discuss how much trauma insurance cover may be right for you.

National Identity Fraud Awareness Week

This week is National Identity Fraud Awareness Week. Last year I wrote a detailed article on how to protect yourself from identity theft. The article also shares the story of how my sister was defrauded of $2,000.

This year the Australian Federal Police have published an excellent survey to test how well you protect yourself against identity crime. The survey is a quick 15 questions and quite insightful. I recommend you take the survey now to test how protected you are.

Identity theft can cost you a fortune in lost money and time. This week take a few moments to assess how risky your behaviour is and read my article on how to prevent ID theft. Then of course take action!

What to do if massive world change is coming

“Perhaps the developed world is about to experience massive structural change”, mused my mate as we discussed the global financial situation recently.

In truth no-one knows what will happen.

The great news is that the actions which prepare you to survive a massive change also position you to thrive if instead a boom arrives. So irrespective of your personal forecast it is worth implementing these suggestions.

“Perhaps the developed world is about to experience massive structural change”, mused my mate as we discussed the global financial situation recently.

In truth no-one knows what will happen.

The great news is that the actions which prepare you to survive a massive change also position you to thrive if instead a boom arrives. So irrespective of your personal forecast it is worth implementing these suggestions.

What could happen

If massive change arrives it probably won’t be pretty. You may experience some of the following:

  • You lose your income, maybe for an extended period.
  • Just to keep food on the table you have to sell assets, maybe including your home, cheaper than what you paid for them.
  • Your loved ones lose their income and assets and move in with you.
  • Your investment values go sideways or even down.

It’s all about cash flow

To keep food on the table and a roof over your head you need cash flow. Your best bet to keep money flowing in is to keep your job.

Even in the Great Depression seventy per cent of Australian men remained employed, so if you play your cards right there’s a good chance you’ll stay employed.

To protect your employment income you need to maintain expertise of value to your employer, your industry and to the country.

One way to achieve this is through ongoing professional development. Another way is by being more productive – work smarter, not longer.

For some people though, reskilling and reinvention will be necessary. This will likely apply to those working in retail and other consumer discretionary industries. Don’t despair – these days changing careers is the new black.

Contain your expenses

Borrowing to the max seemed normal while wages and asset prices grew steadily. But it’s now evident many financial houses were built on unsuitable foundations. To survive and thrive avoid over-committing to large debt repayments that are reliant upon two incomes.

Make like a squirrel

It’s time to make like a squirrel and save up your nuts for winter. Build a reserve of emergency funds you can use to fund your expenses if the worst happens.

The best emergency fund is cash you can access within about 1 to 2 days’ notice. The cash can take a number of forms including:

  • Actual cash in a high interest online bank account
  • Available redraw on your mortgage because you are way ahead in your repayments
  • Withdrawal capacity in a personal line of credit secured against your home

Don’t rely solely on your investments

You may be thinking your investments are your backup plan.

If massive world change arrives it may be the worst time to sell your investments. In fact for lumpy assets like property you may not even be able to find a buyer. I know people who during the Global Financial Crisis couldn’t find buyers even after cutting prices.

In a “crisis” companies may slash dividends to preserve cash, leaving you empty handed.

And if people start bunking together to save costs your investment property may be without tenants. Or you may have to slash rents just to get a tenant.

So don’t rely on living off your investments if you lose your job for an extended period.

When the sun shines

Of course doomsday may never arrive and instead we’ll re-enter years of prosperity.

In that case, having invested in your professional development you’ll be in demand and may experience significant pay increases.

As a diligent debt repayer you won’t care as much when interest rates go up (to curb inflation) because you’ll have much less, if any debt.

Couple the higher income with contained expenses and you’ll have plenty of surplus income to invest in funding your early and luxurious retirement.

Chill out

Follow this timeless, common sense approach and you can confidently keep a “she’ll be right mate” attitude no matter what happens.

Is this a scam?

Smart scammers try to make themselves appear legitimate as a way to suck you in. Before doing anything check the ASIC list of companies you should not deal with.

Smart scammers try to make themselves appear legitimate as a way to suck you in. They’ll use official sounding names, even names that are very similar to real companies.

In fact I had some scammers copy my e-mail newsletter template to send their spam. So their message looked very legitimate.

The Australian regulator, ASIC have compiled a very useful list of companies you should not deal with. It includes a list of official sounding overseas investment regulators and exchanges that are actually fake.

If you’ve been contacted with an offer that seems attractive:

  1. Get all of their contact details including registered business name, website address, physical address and phone number.
  2. Ask them to post a hard copy of their Product Disclosure Statement (PDS) and Financial Services Guide (FSG). Don’t give them your e-mail address.
  3. Insist you will do nothing right now and instead will call them back after considering the offer.
  4. Check their business name  and ABN are legitimate using the ABN Lookup tool and ASIC registers
  5. Check the ASIC list of companies you should not deal with
  6. Report the scam to ASIC

Scammers will of course provide very serious resistance to steps 1 through 3 so that alone could be a big indicator to go no further.

I also recommend you read my article about protecting yourself from identity theft.

Crazy ways it could happen to you

Most of the time most of us have our wits about us and therefore don’t get injured.

But it only takes a momentary lapse in concentration or a ‘brain freeze’ moment and injuries or even death can occur to smart, cautious people.

Following are some statistics I come across of crazy ways that people got injured or even killed.

3 Australians die each year testing if a 9V battery works on their tongue.

71% of people over the age of 50 are injured due to opening supermarket packaging.

43 Australians were admitted to casualty departments in the last 2 years from attempting to open beer bottles with their teeth or eye socket.

142 Australians were injured since 1998 from trying on a brand new shirt & not taking out the pins first.

18 Australians were seriously burned in 1988 from putting on jumpers while having a lit cigarette in their mouth.

31 Australians have died since 1996 from watering the Christmas tree while the fairy lights are still plugged-in.

19 Australians have died in the last 3 years by eating Christmas decorations they believed were chocolate.

Hospitals reported 4 broken arms last year after cracker pulling incidents.

58 Australians are injured each year by using sharp knives instead of screwdrivers.

8 Australians have cracked their skull since 1997 after falling asleep (passing out) while throwing up into the toilet.

The above stats are courtesy of CommInsure.

If you are mostly healthy and careful but, like me, are the occasional victim of brain freeze then an accident-only insurance policy may be worth considering as a cost-effective way to protect your lifestyle.

Be prepared to lose your job

Whilst there’s not as much doom and gloom around now as there was during the global financial crisis (GFC) of 2009 the world hasn’t returned to over-brimming confidence. Recent natural catastrophes plus instability in the Middle East have dented the return to confidence.

Don’t worry – I’m not dragging out my dusty crystal ball and predicting an imminent recession.

Which is why now is the perfect time to make plans for if you do lose your job at some time in the future.

Waiting until gloom is upon us often leaves not enough time to squirrel away your chestnuts.

That is what happened pre-GFC. People had been:

  • Borrowing up to their eyeballs expecting continuing pay rises and asset price increases to keep them cosy
  • Spending everything they earned and more

Then the GFC hit and many people were stressed about how they would survive if they were retrenched. Many who did lose their jobs struggled to survive and had to rely on selling assets and the generosity of others.

That kind of financial and personal stress wreaks havoc on your quality of life and relationships.

But it doesn’t need to be that way. When you have your financial affairs in order losing your job can be just a blip on the journey.

How to prepare for retrenchment season

Last night in my DIY Wealth Creation course we talked about risk management. Two ways to manage risks are to minimise the likelihood and to minimise the consequences.

Emergency savings minimise the financial consequences

If you have plenty of easily accessible savings then you can use these to keep food on the table and avoid the bank knocking on your door about missed mortgage repayments.

I recommend having at least three months’ worth of total expenses squirrelled away for emergencies. If in your line of work you think you could be out of work for longer before getting a job then put away more.
By total expenses I include everything: all loan repayments including credit card as well as your lifestyle expenses.

That recommendation assumes you know your expenses. So if you don’t know how much you spend then start working that out. The knowledge will both help you plan and also help you survive if misfortune strikes.

Keep the savings liquid

You need these savings easily accessible and cash is the most liquid. But if you have a home mortgage then your cash could work harder if it was reducing your loan interest. After all you don’t expect to use this amount – only if a true emergency arises.

So I recommend saving your three months’ worth of expenses and making an additional loan repayment. Then if misfortune strikes you can redraw that amount. Don’t see the available redraw and be tempted to use it for a holiday!

If you don’t have any personal debt then a high interest online savings account is a great spot. Have a separate account for emergencies than for your other savings (such as holidays).

Whilst shares and many managed funds are liquid the economic situation that may lead to your retrenchment may also be a time when you don’t want to be selling investments. So I suggest you don’t invest you emergency savings.

Professional development minimises the likelihood

You can minimise the risk of retrenchment by ensuring you are very employable.

You can do your best to ensure you are so valuable to your employer that you are one of the last to be let go.

But if your company or project closes then retrenchment may be unavoidable. In that case you want to be one of the first people snapped up by other employers.

Professional and personal development is essential in today’s world to ensure you continue to be very valuable to your employer and your industry. Is it time to brush up on your expertise or even expand it? Maybe your networking and relationship building could be polished? Those networks could help you get your next job.

Professional development also makes sense for wealth creation. It should help you increase your actively earned income, which you can then spread between increasing your lifestyle and your investment.

Don’t max yourself out

You can also minimise the consequence of losing your job by not maxing yourself out in the first place. Stress test your major lifestyle and investment decisions before committing to implement them.

For example: don’t borrow the maximum amount the banks will give you. Leave yourself a buffer both in interest rate increases and other costs.

Need help saving?

If you need help saving up for emergencies like this then talk to me about cash flow coaching.

Pet insurance

Do you love your pets so much they are considered family members?

How far would you go if your pet got sick?

Fellow financial educator Scott Pape, The Barefoot Investor, loves his dog Buffett. Recently Buffett was bitten by a tiger snake and required urgent medical treatment costing $5,000. Read Scott’s story here.

In the article Scott notes: “so long as you buy the right policy, pet insurance is a smart investment. The yearly cost to cover your pet for treatment of illness or injury ranges from $250 to $350.”

For that amount of money Scott says you can get around $12,000 of cover.

Many pet lovers commenting on Scott’s blog and Facebook page considered that amount of money easily justifiable for a pet they consider to be a family member.

Protect your human family members first

But I wonder how many of those same people baulk at spending money to protect the lifestyle of their human family members? And in most cases you can get much higher cover for the $250 p.a. premium.

For example I just completed a recommendation for a 30-something client who can get $105,000 of top-notch trauma insurance for the same premium – just $250 per year.

So if your pet gets seriously ill you’ll only get $12,000 and still have a $500 excess hit you. Yet, if YOU get seriously ill you could receive around $100,000 (and no excess). Now that’s value for money!

And did you know that for around $50 per year you can get $50,000 of trauma cover for your children? I’m sure you would do whatever you can to help your sick child, just as you would for the beloved family pet. Give yourself more treatment choices by considering child trauma cover as an add-on to your own trauma insurance.

So the next time you get bleary eyed over the thought of something happening to your beloved pet, spare a thought for how to protect yourself from the lifestyle impact of you, your spouse or child getting sick.

Flood insurance

The flooding in Queensland, New South Wales and Victoria has highlighted to many the devastating consequences of natural disaster. For many the likelihood may be low but when the consequence is so high it is worth considering the plans you have in place to protect your family’s lifestyle and dreams if misfortune strikes.

Insurance can be one tool for minimising the impact of natural disaster.

To learn more about flood insurance read this edition of Consumer Tips published by The Insurance Council of Australia.

The Herald Sun also published an easy-to-read overview of insurance cover for floods. (18 Jan 2011)

Choice also provided a flood update in to their guide on choosing home and contents insurance. It is a worthwhile read. (14 Jan 2011).

When the best policy is actually necessary

In November we decided to replace our second car after the old one was sentenced to death row during a regular service.

In researching new (small) cars I noticed that many of the modern popular features are not available in the base/lower versions of several models. You need to buy the higher version to get those features.

For example:

  • Side and curtain airbags to elevate the model from a 4 to 5 star ANCAP safety rating
  • Bluetooth connectivity (for your phone and/or MP3 player)
  • Rear electric windows
  • Cruise control

I don’t consider such features as luxurious bells and whistles. To me they should be standard based on the way many in the western world are living our lives right now.

So going for the premium version of a model doesn’t just get you sexier exterior and interior trimmings plus a more powerful stereo – things you may not really need. You need to upgrade to the premium version just to get the 5 star safety rating – a really valuable feature to all.

Similarly for personal insurance

I have noticed a similar trend in personal insurance following the recent season of product upgrades.

In the case of car buying our extensive driving experience makes us better equipped to identify and assess the value of the extra features in the premium versions of models.

Not so with personal insurance where many of us have no direct experience.

With personal insurance going for the Premier or Plus version of a policy doesn’t just get you a bunch of lovely ancillary benefits that may aid your comfort when you claim.

Increasingly I am noticing that you need the top version to get the more generous definitions of core policy terms – the terms that will affect whether you can successfully claim at all.

A disability example

For example, the definition of disability will affect whether you are considered sufficiently disabled such that you can claim under your income protection or total & permanent disability (TPD) policy. It is a core policy term and you want a generous definition that increases the scope of situations in which you could receive a benefit. A narrower definition may mean that even though you are unable to earn at full capacity you don’t receive any insurance benefit.

With some income protection and TPD policies I have noticed you need to select the Premier/Plus version to get the market-leading generous policy definition of disability.

Similarly with trauma insurance policies the top versions have the market-leading definitions for core (the most common) illnesses such as cancer, heart attack and stroke.

How do you know?

You’ll only realise this if you take the time to read the Product Disclosure Statement (PDS). You won’t realise this if you are just ringing around getting quotes and making a decision on premium price under the assumption that most products are similar.

What you should do

In the past I’ve often recommended you don’t just choose the cheapest insurer because they usually are cheaper due to being stricter with their policy terms.

Now I am extending that to explicitly recommend you don’t just choose the base/cheapest version of an insurer’s policy. The premium version may offer market leading terms for core features – a bit like the 5 star versus 4 star safety rating in cars.

Take the time to read the Product Disclosure Statement and understand the core differences between basic and premium policy versions.

And if you don’t have the knowledge and/or time to make that thorough comparison then outsource to a qualified, experienced financial planner or insurance broker. Their fee will be worth its weight in gold in ensuring you purchase a good value-for-money policy.

Protect yourself from identity theft

Two months ago my sister, Julia was the victim of identity fraud. Two thousand dollars quickly disappeared from her bank accounts before she detected it.

This week is National Identity Fraud Awareness Week (NIDFAW), so I encourage you to consider how you may be placing yourself at risk of identity fraud. Then act to prevent it.

NIDFAW spokesperson Peter Campbell noted that “potentially, all it could take is a combination of a few carelessly discarded pieces of information such as name, date of birth and bank account details for the fraudsters to have the information they need to attempt to commit identity fraud.”

How my sister was defrauded

  • Offender contacted her bank and changed her phone banking password.
  • Offender ordered a Visa Debit card linked to her savings account.
  • Offender stole the Visa Debit card and PIN from her letter box.
  • Offender withdrew the max $1,000 from ATM using Visa debit card.
  • Offender used phone banking to make a cash advance from her credit card to her savings account.
  • The next day the offender withdrew another $1,000 using the Visa Debit card.
  • That same day my sister detected the fraud and contacted her bank about the missing $2,000. The card was cancelled.

It could easily happen to you

Often we are very conscious of online identity fraud but paper based fraud is still the most common way for an identity to be stolen.

And 75% of Australians put themselves at risk of paper based identity fraud by throwing away highly sensitive information.

Lock away your mail

Needless to say Julia now has a lock on her letter box, as do we. I recommend that you do too.

In fact, some years ago after mail was stolen from the letter box at our old house we decided to get a post office box. If there is a post office convenient to you then a post office box can be a low cost way to help protect your sensitive mail.

A post office box also helps keep your home safe when you are away on holidays by preventing mail accumulating.

Store safely

Physically

For legal reasons it is a good idea to retain copies of your tax returns and related financial statements for around seven years. These documents contain precisely the sensitive information that could enable your identity to be stolen.

To help protect your identity store these records in a lockable filing cabinet. And of course keep the cabinet locked with the key hidden away.

I know that we have so many locks these days that it can be considered inconvenient to lock things and hide the keys. So I was excited recently to find a very affordable small lockable key cabinet at my local hardware store. Yes it is more of a barrier than truly secure, but it is convenient and thieves do first need to find it. Plus it helps keep my young children out of places I don’t want them.

Electronically

Today many of our statements and records may be received electronically and stored on our computers. This is convenient and low cost. But if your computer is stolen or simply accessed while you aren’t around you could be giving up sensitive information.

Protect yourself by:

  • Password protecting your computer.
  • Storing these sensitive records in an encrypted folder on your computer.
  • Automatically locking your smartphone when not in use.
  • Securely erasing disk drives before discarding of old computers and USB drives. (Ask a geeky friend or relative to point you in the right direction.)
  • Create passwords/PINS that are not easily associated with you and your details such as date of birth, phone number and age.
  • Only allow trusted close friends to EFT money directly into your bank account.

Encryption is easier than you may think. Most modern computer operating systems (e.g. Microsoft Windows) have an inbuilt encryption facility that enables you to selectively encrypt folders.

Many of us now have smartphones and use the apps to store documents and access websites that contain sensitive personal information. For convenience often these apps automatically remember your logins and passwords. So ensure that you lock your smartphone when it is not in use.

Update on 2nd April 2011: New research has shown that “over half of secondhand mobile phones retain important personal data of the original owner”. So ensure you  format the phone’s memory and destroy your SIM card before discarding it.

Share birthday wishes privately not publically on Facebook, Twitter and other social media. Even just saying “happy birthday Matt” on Facebook gives away the day and month of my birth. Adding the personalisation of my age is a nice touch, especially on a milestone birthday, but it gives away my entire date of birth.

Shred before discarding

National Identity Fraud Awareness Week promotional flyerDocuments containing the following sensitive information should be shredded before being placed in the rubbish bin:

  • Account details (of anything where money can change hands)
  • Dates of birth
  • Tax file, Centrelink and Medicare numbers

Personally I like to shred statements and letters referencing any account details for anything. This includes all bank, investment, superannuation and insurance products, plus utility bills.

Protect your identity and the environment

If like me you like to recycle paper then I recommend you buy a compost bin. I discovered recently that putting shredded paper into our composter helps to keep it balanced and healthy. Plus composting saves us money.

Other tips from NIDFAW

The partners in National Identity Fraud Awareness Week suggested these additional tips:

  • Check your account statements regularly and look for any unusual or unauthorised activity.
  • Subscribe to an ID theft protection/monitoring service such as Secure Identity that allows you to proactively monitor your credit file for fraudulent activity and be able to react swiftly should you become a target for ID theft.
  • Contact your credit card company and banking institution before departing for travel, or your travel may prompt a block on your account.

For more information on how to protect yourself from identity fraud, and how to cope if you are a victim of ID fraud, visit the official campaign website www.stopIDtheft.com.au or www.crimestoppers.com.au for more information.

Got your own story or extra tips?

Have you been the victim of identity theft or know someone who has? If so, please share your extra tips for how to prevent what happened to you. You can do so in the comments below. (Share it anonymously if you prefer to protect your identity.)

Article sources include:
* National Identity Fraud Awareness Week (NIDFAW) media release.
* Fellowes (2010), Newspoll Survey, Australia – ID Fraud Awareness, conducted on a national online study with a sample of 1211 people aged 18-64 years.

Centrelink won’t save you

When I talk to people about the importance of erecting safety nets under their lifestyle I am often countered with “won’t I be able to get Centrelink?”

Centrelink is social security not social comfort nor social choice.

Theoretically social security is to keep you above the poverty line if misfortune strikes. But many who rely on Centrelink may argue they are below the poverty line (e.g. aged pensioners.)

Could you really survive on these amounts?

The current maximum rate of the Disability Support Pension is $644.20 per fortnight for a single person. That’s $16,749 per year.
How are you going to keep food on the table, a roof over your head and meet medical costs on that?

And let’s suppose you not really saving much for eventual retirement. Could you survive on
the current maximum rate of the Age Pension, which for a couple is $1,057 per fortnight (combined)? That’s $27,482 per year.

Erect a safety net

When it comes to the most important things in life there is no substitute for proper prior planning and purposeful action.

The personal impact of misfortune is bad enough without being compounded by financial stress. Take action now to erect a financial safety net to support you if misfortune strikes.

Four types of life insurance

Insurance is a tool to help protect your lifestyle and wealth creation if misfortune strikes.

This article provides a brief overview of the four main types of personal risk insurance. Commonly these are referred to under the umbrella term of “life insurance” but they each serve distinct purposes. Think of each type as a different strand in your safety net.

For more detail on each cover please browse through my article archive. The archive includes articles on:

  • Why you would have each cover
  • How to work out how much cover you may need
  • Statistics on the likelihood of events occurring
  • The cost of items and services you may need if you were seriously ill or injured

Life (or Death) Insurance

Pays you a lump sum benefit on your death. Modern, quality policies often include a feature that gives you an advance payment if you are diagnosed with a terminal illness.

In my experience premature death is the life event most considered by people when they think of personal insurance. However it is perhaps the least likely event that can have a serious impact on your wealth creation. Therefore the next three types of life insurance cover are critical to understand.

Income Protection Insurance

I consider income protection insurance to be the most important personal insurance for anyone who is not yet financially independent. So that’s most adults.

Income protection insurance pays you a regularly monthly benefit while you are temporarily unable to work due to injury or illness.

Short term incapacity is one of the most likely events. And since many people would fall behind in loan repayments and bills if they were out of work for just one or two months, the impact of short term incapacity is high.

You can also receive a partial benefit when you are partially disabled and only able to work part time. This is a very crucial point as partial disablement is probably more likely than total disablement. So it is great to get some benefit to top up your part time income.

Income protection insurance generally pays up to 75% of your total remuneration package (including superannuation and non-cash benefits.) You can choose the waiting period before a benefit will be paid. Plus you can choose for how long the benefit will continue to be paid if you are long term disabled. Commonly financial planners recommend a waiting period of 30 days and a benefit payable up to age 65.

One bonus is that premiums for income protection insurance are tax deductible.

Total & Permanent Disablement (TPD)

Many people have some Total & Permanent Disablement insurance within their employer superannuation but it is rarely close to enough cover.

Total & Permanent Disablement insurance pays a lump sum benefit if you (as the name suggests) are totally disabled and are expected to be for the rest of your life. The rest of your life part is as determined by specialist medical practitioners.

Total & Permanent Disablement is a compliment for income protection insurance. Whilst there is some overlap having TPD is not a replacement for having income protection insurance.

When you are long term disabled you have extra expenses compared with being short term unable to work. For example you may require modifications to your car and house. You may also need to pay for a carer and other household services. If your partner becomes your carer then you’ll need to replace their former income instead.

Total & Permanent Disablement insurance can be used to top-up the extra 25% of your income not covered by income protection insurance. Plus you’ll need some money to cover the saving and investment you would have being doing if you worked your whole life. This can be used to meet your expenses from age 65, which is the maximum age for most income protection policies.

Trauma or Critical Illness Insurance

In my experience another life event that occupies people’s mind is ‘what if I get cancer or have a heart attack?’
Trauma insurance pays you a lump sum if you suffer a serious illness.

Importantly it has nothing to do with your ability to work as a result of the illness. As long as the illness is serious enough to meet the minimum medical definition (in your policy) then you can claim a benefit.

The four most common illnesses covered under these polices are cancer, heart attack, stroke and coronary bypass surgery.

Commonly you could use this benefit payment to help you meet the costs of medical treatment including medication.

Also, if faced with a serious illness many people would like to choose to stop working to focus their efforts on beating the illness. If you medically are able to work but choose not to work then income protection insurance won’t pay you a benefit. So you can use your trauma insurance to replace your income for a year or two while you choose not to work. This can also apply to replacing your partner’s income as many partners may like to be able to be by your side to support you.

You can claim on all four types

It is important to note that you can ‘simultaneously’ claim each of income protection, trauma and TPD insurance for the same illness. Here’s an example how:

  • You suffer a serious stroke. It meets the medical definition so you claim your trauma benefit.
  • Immediately you can’t work or do much at all so after 30 days you claim your income protection benefit. This keeps paying you each month while you continue to be disabled.
  • After 6 months (or 12) you have not recovered your ability to return to your occupation and the doctors unfortunately say that you never will. You make a claim for your TPD benefit and receive a lump sum payment. This claim does not wipe out your income protection, which you continue to receive.
  • Many years later you pass away and your partner receives a benefit from your life insurance. (At this point the income protection benefit does stop.)

How much cover?

To assess how much cover you need for each of the four types of personal life insurance you need to consider your personal life choices. These are individual to you so there is no set rule of thumb.

Insurance fills the gap between the wealth you need to find your desired life, and the wealth you currently have. So your required level of cover (sum insured) changes over time.

To get the cover right first you must consider the life choices you would make in each of the circumstances. Next you work out how much it would cost to fund those life choices.

The calculations can be difficult so use a financial planner to guide you through the process.

Tragedy strikes around 20 percent of working families

Many people overlook personal insurance thinking tragedy will never happen to them. Then a friend or family experiences tragedy and they get a wake-up call. The latest research released yesterday by Lifewise/NATSEM reveals that it can and probably will happen to you at some time during your working life. More than one in five families will be impacted by an insurable event in their working lives.

Over one million working-age parents with dependents will be impacted by death, serious accident or illness.

Many people overlook personal insurance thinking tragedy will never happen to them. Then a friend or family experiences tragedy and they get a wake-up call.

The latest research released yesterday reveals that it can and probably will happen to you at some time during your working life.

Let this research be your wake-up call to review your health, wellbeing and safety nets.
Research by NATSEM for Lifewise revealed that based on 2008 statistics:

  • 18 Australian families lose a working age parent every day.
  • Every year 235,790 working age parents suffer a serious illness or injury
  • Every year over 17,000 working age parents are forced to stop working, either permanently or for an extended period of time.

More than one in five families will be impacted by an insurable event in their working lives.

Yesterday I was given a DVD called “Living with Water” about water safety with children. It’s aimed at preventing the drowning deaths of children under age five – 300 of which have occurred since 2000. That’s just over 30 drowning deaths per year targeted by this significant, government funded initiative.

The death of a child is tragic and I agree with our focus on water safety. Yet consider the massive impact on children and families when family income is slashed by injury, illness of death. And take note that more families per day are affected by that than are affected by the drowning death of a young child.

The financial impact

It should be no surprise that the basic levels of insurance you may automatically receive with your employer superannuation are nowhere near enough.

With typical levels of insurance cover the typical family with dependants will lose around half their income if tragedy strikes, according to the research by Lifewise/NATSEM.

Could you and your family survive on half your income?

When you consider the true likelihood of an insurable event and the financial and lifestyle impact, the cost of insurance cover is very affordable protection for your family.

Contact me to discuss how much insurance cover you may need and how affordable it can be.