Insurance is an integral part of managing risks. You can’t avoid unexpected events from happening, but you can limit their (financial) impact. Having insurance can massively improve a potentially disastrous situation or add insult to injury (so to speak) – if your insurer doesn’t pay or doesn’t pay enough. Picking the right insurance based on your needs is therefore incredibly important.
How to find an insurance policy that suits your needs?
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(Why/When) Is it worth taking out insurance?
Whether to take out insurance (or not) will depend on a variety of factors, including:
- the likelihood of an event occurring (especially after taking precautionary measures)
- the (financial) impact it has if it did occur, and
- your life circ*mstances and financial means/resources.
Insurance is like an umbrella - You need a good one to weather a storm
Let’s look at a popular insurance offered by financial institutions: mortgage insurance. Think about the events that could lead to you defaulting on your mortgage, the likelihood of these events occurring individually (and jointly), the impact that could have and any alternatives (to taking out mortgage insurance):
| Risk/Event | Likelihood | Alternative/s |
|---|---|---|
| I lose my job or I am too sick to work (for a period of time) | Low | Top up emergency funds |
| My partner loses their job or is too sick to work (for a period of time) | Low | Top up emergency funds |
| We both lose our jobs (at the same time) | Unlikely | Top up emergency funds, Rent out spare room for rental income |
| The sickness of one (for example, due to an accident) requires full-time care by the other | Medium | Top up emergency funds, Rent out spare room for rental income, Government support in situations where full-time care is required, Total Permanent Disability (TPD)/ Trauma insurance |
I’m sure there are other considerations but you get the gist… Insurance is not always the best option to manage your risk… or it’s a different cover that better suits your needs.
Do you require insurance? Cool. Let’s walk through the process step by step.
Step 1: Work out your needs/risk exposure
To determine whether and what insurance is right for you, you first need clarity around your insurance needs / risk exposure. Ask yourself some key questions to determine the events you may encounter, the likelihood of them occurring, the potential costs attached and your ability to afford making good if an event does occur:
Home and Contents Insurance
- Where do you live?
- What is the likelihood of break-ins/home invasions in your neighbourhood?
- Do you live in an area prone to natural disasters (earthquakes, violent storms, bushfires, floods, etc)?
- How much would it cost to rebuild your home?
- How long would it take to rebuild, and what would you do in the meantime?
- Do you keep an inventory of your furniture, appliances and personal belongings?
- How much would it cost to replace all your furniture, appliances and personal belongings?
- How much would it cost to replace your most valuable belongings?
- Could you afford to pay for it – out of your emergency funds for example – or would it require you to get (further) into debt?
Could you afford rebuilding your home and replacing everything in it?
Private Health Care/Medical Insurance
- How old are you?
- Do you have any health issues?
- What is your lifestyle? Does your lifestyle make you more susceptible to certain injuries or illnesses?
- Are any health issues running in your (immediate) family?
- How likely is it for any (serious) health issues to arise in the near future (based on your lifestyle choices or family history)?
- What would it cost to diagnose and treat these health issues?
- Could you afford to pay for it – out of your emergency funds for example – or would it require you to get (further) into debt?
What do we do regarding Private Health Care/Medical Insurance?
There is a higher likelihood for Sandra to get cancer due to her family history. Cancer treatments were, therefore, a greater focus for us (including the amount of benefit paid and access to new forms of treatment).
Given that he runs (almost) every day, there is a higher likelihood for Paul to have running-related injuries. Specialists and diagnostic imaging (such as MRI scans) were therefore also quite important when we looked at insurance options (including the amount of benefit paid and conditions of payment – for example, some may only pay for scans if you are hospitalised).
As we travel for a large part of the year (where travel insurance would be a better option), suspending the policy for some time (and the conditions for suspension such as minimum and maximum terms) were also important elements for us.
While we regularly get dental and optical check-ups, getting extras coverage was out of the question given the cost and waiting periods.
Travel Insurance
- How old are you?
- Do you have any health issues?
- Where do you plan to travel?
- What is your travel style?
- What could go wrong during your travels?
- How likely is it for one of these events to happen – given your destination/s, travel style and/or health issues?
- Could you afford to pay for it – out of your emergency funds for example – or would it require you to get (further) into debt?
What could go wrong when you travel?
Document your answers (for example, in a table similar to our mortgage insurance example above). Identify which events and risks you are most concerned about. These indicate whether you should take out insurance and would be your MUST HAVEs for your insurance policy.
Step 2: Shortlist insurance providers/policy options
Ask friends and family who they use and what their experience has been. But also do your own research. Just because they have XYZ’s policy doesn’t make it the right choice for you. Shortlist providers/policies that might fit your needs. If not available online contact the providers on your shortlist to be sent the wording of the policy/policies that might fit your needs.
Shortlist the insurance policies that best meet your needs
Insurance Brokers
I know an insurance broker. Can’t I just go through them? You can. Though do keep in mind the following pros and cons and make decisions with your eyes wide open.
Pros
- They ‘live and breathe’ insurance and will do a lot of the legwork for you.
- They work with a panel of insurers that have been pre-screened.
- They can provide insights into soft factors such as how easy the insurer is to deal with when you do need to make a claim.
- They can be beneficial and speed things up in the event you need to claim.
Cons
- Given they work with a (limited) selection of insurers, they may miss providers/ policies that could fit your needs.
- They earn a commission and may thus not (solely) act in your interest.
- The insurance broker may not be independent but may be aligned with an insurance provider.
- A lazy insurance broker can be more hindrance than a help when you do need to claim.
Beware the pros and cons of using an insurance broker
Ask your insurance broker about their qualifications, any conflicts of interest and for references. Most of them would be very forthcoming on these aspects, the good ones anyway.
Other important considerations when dealing with an insurance broker:
- Be very clear about your needs and challenge them if it seems they are trying to sell you something that doesn’t fit your needs. Stay away from pushy salespeople.
- Ask a lot of questions. Cut through the insurance jargon. If they can’t explain it in laymen’s terms it’s a sign to find a better insurance broker.
- Understand the claims process: How would the broker help you if you need to claim? Do you need to go through them or can you deal with the insurance provider directly?
What do we do in regard to travel insurance?
- Given the costs of medical treatment in almost every country we explore, the terms of the medical cover (including dental and evacuation in an emergency) were a huge factor when we decide on our travel insurance.
- As we travel and work on the road, the benefit paid for valuable items such as laptops and phones was also important, as was the total benefit paid if all our luggage was lost or stolen.
- Many insurers specifically exclude volunteering activities. Others charge a loading/higher premium for certain activities (including zip-lining, cave tubing, marathon running, ice skating, tobogganing… all activities we have done travelling). So we also always look for a policy that doesn’t.
- While we travel away from Australia or New Zealand, we use and recommend Allianz Travel Insurnance as our preferred travel insurance provider.
Step 3: Review the Policy Wording: The Devil really is in the detail
The last thing you’d want is to pay for insurance (a year in, a year out), and when the worst does happen, find out that you are not covered, and your insurer won’t pay a dime. While it may seem arduous, reading the policy wording is crucial to ensuring you’ve got the right deal for your needs.
The DIY approach
- Start with the first insurance provider/policy option on your shortlist. Create a table with a new row for each key element of the policy. Note down what they do/don’t pay for, and how much the maximum benefit/pay-out is. Likewise, document any waiting periods and exclusions.
Examples of exclusions are:
- Private Health Care/Medical Insurance: pre-existing conditions, certain types of treatments (such as reconstructive surgery).
- Home and Contents Insurance: mould, rot, corrosion or gradual damage, damage caused by rodents, inherent building defects.
- Travel Insurance: certain activities such as volunteering or any sports activities the insurer may deem a higher risk.
Don't assume your travel insurance policy covers all your activities
- Move on to the next provider/policy option. Identify the same key elements and note down the details. If one insurer pays for something another doesn’t then capture it – It may (or may not) make a difference come decision time.
Two words of wisdom as you go through each policy wording document:
- Every insurance provider will have structured their policy wording differently, so you may have to go back between policies to clarify.
- Pay attention to how something is worded as this can make all the difference at claim time! Copy and paste if need be rather than put it into your own words.
Read the fine print to reduce the risk of your claim being denied
- Once you have gone through all policy options, highlight those elements that are absolutely critical considering your needs. If anything is unclear contact the relevant insurance provider and get clarification (ideally in writing).
- Do some research on soft factors such as customer service:
- Is their hotline staffed 24/7? For travel insurance: Can you reverse charge calls from overseas?
- Check out reviews from customers online
- Ask friends and family for their experience.
- Identify the policy option/s that best meet/s your needs and request (a) quote/s.
If you have a pre-existing condition that is not normally covered but you are otherwise happy with the policy, contact the insurer and ask for a quote that would include your condition. Most insurers are happy to insure a pre-existing condition but will charge a loading on their usual premium.
What do we do in regard to home and contents insurance?
- Home and Contents insurance policies are quite similar in what they cover but there are differences: for example, some insurances don’t cover damage caused by floods. Others don’t cover damage caused by motor burnout.
- With a stormwater drain right outside our house (and reasonably new appliances) we chose the one with flood cover over the one with motor burnout, especially considering the policy included a voluntary top-up if our sum insured turned out to be insufficient, the insurance premium was lower, and the insurance provier had a good reputation regarding its customer service.
If you go through an insurance broker
Before you sign the dotted line: Read the policy wording and get clarification on any remaining questions from your broker (ideally in writing). Don’t assume any suggestions from them meet your needs (refer to the Cons above).
Step 4: Determine which policy best matches your needs
If you’ve got several contenders, compare the policy options, taking into consideration
- how well do the policies meet your needs
- the premium (be aware some insurers charge more if you pay monthly or quarterly instead of annually); and
- any soft factors such as customer service.
Only once comfortable with your decision, complete the application and sign on the dotted line.
Step 5: Be prepared for the worst case
Should the worst happen, especially a more disastrous event, imagine your world to be in chaos (at least initially). Apart from notifying your loved ones, calling your insurer would be high on your list at that point. It, therefore, helps to have all your insurance details readily available at all times:
- Save your policy details in your password manager.
- Save the insurance certificate, policy wording and any other useful documentation (such as inventories) in the cloud.
It also pays to (re)familiarize yourself with the claims procedure occasionally (including when to call your insurer, and the documentation required to make a claim – such as police reports, receipts, etc), for example before you head off on your next overseas trip.
Make sure your insurance details are easily accessible in case the worst does happen
Step 6: What to do upon renewal
A year has gone by and you receive a letter from your insurance provider that your policy is due for renewal – almost always with an increase in premium.
Don’t just roll over. Check the (new) policy wording for any changes since you signed up, keeping in mind any changes in your life circ*mstances. If another insurance option came close last year, get a quote and compare the two (again). If the other one is cheaper but you’d like to stay with your insurer you may be able to negotiate your renewal premium down. A broader comparison of your options may only be sensible every five or so years (unless your life circ*mstances change significantly).
If you went through an insurance broker, and they offer you a better deal as your renewal date approaches, be aware that they may just want to churn (that is, earn a new upfront commission). Go through the same steps as mentioned above. Come to your own conclusion whether it’s a better deal than your current insurance coverage or not. And don’t let them push you into anything.
What do you consider when selecting your insurance?
What insurance do you have? How did you determine which policy to choose? Is there anything important we forgot? Please send us an email.
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