Part Five: Squeezing the Most Out of Your Policies
Welcome to Crayon’s mini-series on personal insurance. Throughout this series, we’ll explore how it could work for your family and give tips from our experts to make it easy, actionable and effective.
You’ve taken out a policy - now what? Let’s run through what to consider for the ongoing management of your insurance coverage.
Review your coverage every 1-2 years or after a major life event
The type and amount of coverage you need will fluctuate as your life circumstances change, especially when you experience a major event such as getting married or divorced, having a child or becoming empty nesters. The last thing you want is to claim only to discover that your insurance payout is insufficient for your current lifestyle. And you don’t want to pay premiums for extra coverage you don’t need either! If you have an insurance advisor, they can help you ensure you’re maintaining adequate coverage.
Dealing with exclusions and loadings
Exclusions are specific situations where the insurer will not pay the claim. There can be two types of exclusions for any given policy:
Global: these exclusions apply to everyone who holds the policy. For example, many life insurance policies will not pay out if the insured person dies during a terrorist event or in the commission of a crime.
Individual: these exclusions apply on a case-by-case basis. Typically, it’s because of your lifestyle (e.g., high-risk activities such as skydiving) or health-related issues such as smoking.
Loading is where you’re covered, but you’re charged a higher amount over and above the insurer’s standard premium. These are typically expressed as a percentage, and they can range from +50% to +400%. For example, a +50% loading means you’re paying 50% more than someone of your age, gender, smoking status, and occupation.
In some cases, exclusions and loadings can be removed after a period of time. You need to prove that your hazard exposure or pre-existing condition has significantly improved, typically over a period of 12 months or more. Insurers are careful about this because once they remove the loading or exclusion, they can’t add it back.
Increasing coverage when you experience a life event
Some policies have a “special event” clause, which means when certain life events happen, including having a child, you can increase your policy coverage up to a predetermined amount without needing additional underwriting. While you will have to pay more for more coverage, you don’t have to do all the extra forms, blood tests and doctor checks that come with underwriting.
Each policy will define life events slightly differently, so check this before taking out the policy. Typically, this can include:
Having a child
Getting married or entering into a civil union
Getting divorced or the dissolution of a civil union
Taking out or increasing your mortgage
Becoming a full-time carer for a close relative or paying for their long-term care
Your partner passes away
Your salary increases significantly, i.e. by 10% or more and by at least $20,000.
Taking a premium holiday
Some insurers offer a one-time “premium holiday” for up to 12 months if you go on parental leave or take unpaid leave. During the premium holiday, you don’t have to pay premiums, but you can still claim.
An option if you’re experiencing financial hardship is a policy suspension. Again, you don’t pay premiums during the policy suspension period, but you can’t claim in this case. While this is not as favourable as a premium holiday, at least you can restart your cover.
It’s worth checking if either of these is an option on your policy should you need to use them.
Your child can be added to your trauma insurance for very little cost
We’re often asked whether health insurance is worth it for kids (that’s a topic for another time). A little-known option is that many insurers allow you to tag your kids onto your trauma policy, and it’s often available with little to no underwriting. Some insurers even offer the first $50,000 trauma cover for your child for free and extra coverage is generally cheap (around $5 a month for every $10,000 of additional cover). Some insurers automatically add any dependents to your trauma policy, while others require you to apply.
Why can trauma insurance make sense for a child? If your child faces a critical illness, you and/or your partner will likely take time off paid work, and your household income will drop. However, your income insurance would not pay out because you have not personally suffered an accident or illness. In this instance, your child’s trauma policy could provide the financial buffer your family needs.
Final words
“Risk is what is left over when you think you’ve thought of everything”
I have to admit, even after experiencing the financial benefit of personal insurance firsthand, when my husband and I started paying personal insurance premiums, I couldn’t help but wonder what else we could be doing with that money. It’s tough paying money every month to protect ourselves against something we hope will never happen (or at least not happen for a very long time).
Over time, I’ve come to see it as an expense for a season in our lives. Personal insurance is there so that if something unforeseen happens to one of us, we don’t have to sell the family home and make big life changes at a time when our lives will already be disrupted and stressful. As our kids grow older, we pay down our mortgage, and we save more towards our retirement, our personal insurance needs lessen. And we look forward to that day!
I hope our guide has helped you work out whether personal insurance is something you want to explore and equipped you to have a productive conversation with an insurance advisor, should you choose to work with one. At the end of the day, the goal is for you and your family to have the right level of financial safety net in place.
Finally, thank you Royden for being generous with your time and knowledge.
This is part of Crayon’s mini-series on personal insurance:
Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 15 November 2022.
Royden Shotter
Financial Planner and Founder, Planolitix
Stephanie Pow
Founder and CEO, Crayon
