Understanding Private Health Insurance

Private health insurance is one of the valuable tools that you can use as part of your lifestyle safety net.

One of the big benefits is access to a private hospital and avoidance of lengthy public waiting lists if you ever need surgery. (Of course deep pockets also gives you such access.)

The private health system in Australia takes pressure off the public health system so the Government provides incentives and penalties to encourage you to participate.

Thirty Percent Rebate

The Australian Government currently subsidises private health insurance with a 30% rebate. In one sense that is equivalent to making the insurance ‘tax deductible’ to the vast majority of Australians.

Medicare Levy Surcharge

I’ll let the Government explain this penalty:

The Medicare Levy Surcharge is levied on Australian taxpayers who do not have private hospital cover and who earn above a certain income. The surcharge aims to encourage individuals to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public system.

The surcharge is calculated at the rate of 1% of taxable income. It is in addition to the Medicare Levy of 1.5%, which is paid by most Australian taxpayers. The Medicare Levy Surcharge is imposed on individuals earning over the threshold who do not have an appropriate level of hospital insurance. The threshold is $73,000 for individuals and $146,000 for families.

You do not have to pay the surcharge if your taxable income is below the income threshold.

A key thing to understand is that for many higher income earners the cost of the surcharge is higher than the cost of the private hospital cover insurance that would enable them to avoid the surcharge. So once you earn above the threshold it is a no brainer decision to purchase hospital cover. Remember there is no obligation to choose the more expensive ancillary cover.

Learn More

To learn more about private health insurance I recommend the following websites:

  • PrivateHealth.gov.au is an Australian Government website which includes a database of all policies offered by Australian health funds.
  • PrivateHealth.com.au is an initiative of the Heath Insurance Association and includes some statistics and discussion of the benefits of private health insurance.

Life Saving Advice

These days many people survive a serious illness like cancer, heart attack and stroke. But the experience leaves many financially crippled. It shouldn’t and doesn’t need to be that way.

Safety Nets For Your LifestyleThese days many people survive a serious illness like cancer, heart attack and stroke. But the experience leaves many financially crippled. It shouldn’t and doesn’t need to be that way.

“My reaction was, if this is going to save my life, I don’t care how much it costs.”
Breast cancer survivor, Bronwyn Wells quoted in The Weekend Australian, 26th September 2009. View article here

Yes of course if you are faced with a life threatening illness you’ll happily sell investment assets to fund your lifestyle and medical expenses.

But what if that is not enough?

And what next once you’ve pulled through?

“The financial impact of something like breast cancer is enormous”, said Wells in the article, which also reported that she had taken two years off work to fight her illness.

If that financial impact concerns you then it’s time to look at another strand in your safety net.

A Valuable Tool – Trauma Insurance

If you want to be able to fund your choice of medical treatment then trauma insurance can provide you with the money.

If at the same time you want to protect your family’s lifestyle and avoid financial stress then trauma insurance is essential.

Trauma insurance pays you a lump sum benefit on the diagnosis of a serious illness. The most common four conditions are cancer, heart attack, stroke and coronary surgery.

A beautiful partner to income protection insurance

If your serious illness means you are unable to work then you may be able to receive a benefit from your income protection policy. This replaces up to 75% of your income so it goes a long way to helping you maintain your existing lifestyle commitments.

However, a serious illness will increase your expenses. So you need additional protection. That’s where the trauma insurance helps a lot.

The Cost of Treatment

Treatment costs vary widely but its probably much higher than you think. The article in The Weekend Australian noted that many modern drugs used for cancer treatment cost between $25,000 to $50,000 per year.

Importantly not all are subsidised on the Pharmaceutical Benefits Scheme (PBS).

If your doctor told you of a new wonder drug that could save your life but it was not yet on the PBS would you find some way to come up with the money?

It’s human nature to. But then if the drug works you will survive but may be financially crippled or at least strained.

Trauma insurance can support those choices.

Take Action then Sleep Easy

I don’t advocate dwelling on what could go wrong and the consequences if it does. But I also don’t advocate putting your head in the sand and not thinking about or planning for it.

This is how I recommend we deal with such potential speed bumps:

  1. Become aware of the possibility
  2. Acknowledge the true likelihood of occurrence
  3. Investigate and consider the potential consequences
  4. Implement an appropriate safety net
  5. Rest easy knowing you have protection

Don’t assume you can’t afford insurance. It’s often much cheaper than you think – especially once you properly consider the true cost of no protection.

Call me or e-mail me now for a no obligation discussion and quote about the investment in trauma insurance for your safety net.

Thwack! Zero income. How long will you last?

The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”

If life pulls the plug on your income
will you go down the drain?

The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Maybe the answer has stressed you.

Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”

Situations that could create zero income

It is much more likely than you think. Your income could drop to zero as a result of:

  • Retrenchment
  • Injury
  • Illness
  • Exasperation (“I can’t take this job/work any more”)

Exasperation is one cause not to be lightly dismissed. What proportion of people do you know who are working within their passion, in a role and environment that fulfils them? Are you? Would you like the freedom to change and pursue your passion?

Tools to help you cope with zero income

The best tool to give you the ability to easily manage either of the above causes is to have already amassed enough assets and/or passive income.

If you are not yet financially free then consider implementing these other tools until you are.

Liquid savings

How much do you cost to run each month?

If you take the amount of your liquid savings (such as cash) and divide it by your monthly expenses how long will it last?

How long before you fall behind in your loan repayments and start negatively impacting on your credit rating?

One valuable tool for all scenarios is to build up several months, sometimes a year or two of liquid savings. Some of the savings will be in cash or cash-like accounts, some may be in highly traded shares or managed funds.

How much you need in liquid savings depends on you and the choices you’d like to be free to make. At the very least I suggest having three months supply or more.

Insurance, especially income protection

In 2007, 62% of bankruptcies in the USA were medically related. “Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.” Forty percent of these bankrupts lost income due to the illness or injury.
(Source: “Medical Bankruptcy in the United States, 2007: Results of a National Study”. Himmelstein et al.)

Private health insurance alone will not help you survive a serious illness or injury. The type of insurance that covers your ability to earn an income is called income protection insurance. It pays you a regular monthly amount to replace up to 75% of your income.

If you don’t have income protection then I highly recommend that you act. Plus the premium is tax deductible – so purchasing a policy now could save you tax this year.

One other type of insurance to consider is Total & Permanent Disability (TPD), which pays a lump sum amount. You probably have some in your superannuation but do you have enough? Most people don’t even have enough to repay their mortgage and give them the security of a roof over their head.

If I was seriously ill or injured the last thing I would want is the stress of being kicked out of my home. If you too don’t want that possibility then either get adequately insured or win lotto division one this week.

Your Actions

To ensure you can easily cope with a loss of income:

  • Build liquid savings
  • Purchase income protection insurance
  • Create flexible wealth
  • Become clear on your needs and your cost to run

I can help you with all of the above:

  • Cash flow coaching to build liquid savings
  • Selecting an insurer who will actually pay a claim
  • Building wealth for lifestyle freedom

Call me now on 1300 669 100 to book your first, complimentary appointment.

Matt HernYours in prosperity

Matt Hern CFP
Financial Educator and Adviser

(This article appeared in my free newsletter “On The Money“. You can subscribe for free here.)

The value of TPD Insurance

When you’re fighting fit and rarely see a doctor it can be hard to imagine ever needing insurance.

Watch this true story of David Blakeway, a middle-age professional who suddenly suffered an aneurism. David
describes his surgery, time in hospital and how his Total & Permanent Disability (TPD) claim allowed him to ‘put his life back together again‘.

(Reproduction Courtesy ING Australia. Length 5 mins 3 seconds.)

Insurers never pay, right? Wrong!

Insurers are nasty and will do their absolute best to deny a claim so what’s the point of having insurance – right? Wrong!

During the last financial year 98% of all Australian personal insurance claims were paid. And of the 2% that were initially rejected a further third were later paid as a result of internal review at the insurer. This data shows that the “insurance industry is very much in the business of paying claims”, according to the Insurance Ombudsmen Service.

Maybe it is time to reassess your beliefs about insurance and consider it a valuable tool in creating a safety net under your lifestyle.

She’ll be right mate – It won’t happen to me

According to research released by AXA yesterday “Australians are amongst the most carefree and optimistic nations in the world when it comes to life risks.”

Optimism is a great thing but is our attitude based on fact or based on a desire to avoid thinking about that which makes us uncomfortable? The research suggests that it is the latter. (Download the 2007 AXA Protection Report)

Preparation is better than regret.

I am not advocating dwelling on what could go wrong.; that’ll just lead to a miserable outlook on life. I am a big advocate of rational analysis of risk and consequences and ensuring that safety nets are in place. Think and act then get on with enjoying life.

So if you don’t think you need insurance I ask you on what basis have you made that assessment?

  • Have you consider the facts about the likelihood of you not being able to work for an extended period of time due to accident or illness? In my experience people greatly underestimate the likelihood leading to a falsely based “it won’t happen to me” attitude.
  • Have you properly considered the consequences if it did happen? Consider the true impact on your life and your family’s life if income did not come in for months even years. Do you really want to lose your lifestyle? “She’ll be right mate” is the attitude that comes form underestimating the consequences – but will you really be all right?

If the likelihood is high enough and/or the consequence unbearable enough then create a safety net under your lifestyle by considering insurance.

How to not lose your life savings

Oh the tragedy! On the front cover of yesterday’s edition of The West Australian newspaper was a story about a single Dad who had lost his life savings in the recent collapse of the property developer, Australian Capital Reserve. Sadly when I read such stories the empathetic part of me is quickly overrun by frustration. Quite simply this should not be happening in 2007!

Yet this massive loss of life savings in a marginal investment still occurs with alarming regularity, so I feel compelled to dedicate an article to helping prevent its occurrence – especially to you.

It is taking a lot of restraint for me not to engage in a rebuke of the traditional finger pointing at product sales representatives and financial advisers. Irrespective of the potential presence of a slick, self-motivated sales representative no-one, I repeat, no-one should lose their life savings in a marginal investment. And certainly not if they take personal responsibility for protecting what they have worked hard to earn.

In this article I will share three tips for you to ensure that this never happens to you.

Spread the love

Struth, I thought most people had heard the old adage “don’t put your eggs in one basket”. Maybe they have heard it but have a momentary lapse of memory when they see a high return being promised.

You won’t lose your entire life savings in an investment if all of your life savings aren’t in that investment.

Especially in the case of high risk, marginal investment products only invest the amount you are prepared to lose if it all goes belly up. By that I mean, per product.

An Exception

The above does not strictly apply to superannuation accounts or investment wrap accounts since they are not investments. They are administration accounts that provide access to a broad basket of eggs (investments).

Think of administration accounts as being like a gym. Generally you only join one gym. But at the gym you have access to lots of different equipment you can use to boost your fitness and health. Use of the equipment boosts your health, not the gym.

I mention this exception since I have encountered many people who think that diversifying their investments means having lots of superannuation accounts. That is not the case. Like gyms, you generally have one superannuation account within which you use several investments to boost your wealth.

Guarantee Equals Red Flag

Whenever I see “guarantee” anywhere near investment related information a massive circle of red flags pops up around me. Those red flags tell me that I must dig deeper and find out:

  • Exactly what is being guaranteed?
  • The circumstances under which the guarantee is valid and when it is voided.
  • The cost of the guarantee
  • How is the guarantee being facilitated? (e.g. if a guaranteed income, where is that income being earned so that it can be paid to investors)
  • Who is providing the guarantee and how robust are they?
  • Is there any research available form a reputable, independent source?

Except for the last point, all of the above information must be included in a Product Disclosure Statement (PDS) and provided to retail investors. So if you want to avoid losing your life savings read Product Disclosure Statements before investing.

By law the Product Disclosure Statement is big because it is designed to ensure you have most if not all the information about the product to avoid making an investment that is inappropriate for you.

If you don’t know that you could lose all of your money (or some other undesirable outcome) and you don’t know because you didn’t read the Product Disclosure Statement in full then the main person to blame for the outcome is…..

If the product is not legally regulated and doesn’t have a Product Disclosure Statement then don’t invest.

Get a Third Opinion

If you feel you don’t understand the Product Disclosure Statement then pay for at least one expert and independent opinion from a licensed Financial Adviser.

If a doctor told you that you had a terminal illness would you seek a second opinion?

For many people losing their entire life savings could be terminal. So before committing yourself to a potential life sentence seek a second opinion from an expert.

And, if after reading this article and the Product Disclosure Statement you still want to invest your life savings in one product then seek three expert and licensed opinions.

For financial advice this is how this tip may work in practical terms:

  • Pay one adviser for comprehensive advice on the appropriateness of the product to your circumstances and goals
  • Pay at least one other adviser for a comprehensive review of the first adviser’s advice. Give them the original Statement of Advice and pay them a fixed fee to review the appropriateness of the advice to you.
  • Before acting ensure that you confirm any discrepancies or queries with the original adviser as there probably is a very good reason for the discrepancy.

Be open and upfront with all of the advisers about the process so they know where they stand and will deliver what you need from each of them. Aim to ultimately work with the original adviser unless any discrepancies are unable to be answered to your satisfaction.

Throw a Life Buoy

It should probably be me on the front cover of the newspaper with tears in my eyes – lamenting the crying shame that the financial literacy message is not getting through. Can you think of any of your loved ones who you don’t want to see lose their life savings? If so, please throw them a life buoy by forwarding this article to them. Even encourage them to subscribe so that they benefit from the fortnightly reminder of life saving behaviours.