Money talks: Julia Newbould

An accident can have a big financial impact, so don’t let rising premiums put you off insurance

Afew years ago a social experiment showed that young people couldn’t comprehend the importance of superannuation – money they put away to be untouched for more than 40 years.

This was understandable – 40 years away is unimaginable. But the experiment went on to show that when people used an ageing app to visualise how they might look 40 years into the future, they were able to better imagine the idea of themselves getting older and realised there may be a time when their super is important.

Visualising tragedy by way of accident or illness is unimaginable for many of us. Only recently I attended a virtual funeral. A friend of mine, just 61, had tripped and fallen, hitting her head, which resulted in massive brain damage. This was most unexpected, as are so many deaths.

It has reinforced my strong belief in insurance. Life, home and car insurance – we never know what may happen and to have a terrible accident and then have the financial impact hit you or your loved ones later is doubly devastating.

At this time, when we are struggling with our finances, insurance premiums can often be a big expense, arriving at a difficult time – maybe we decide we can’t afford it right now or we’re tempted to let it lapse. But before cancelling a policy that becomes unaffordable, consider speaking to a financial adviser to see if it’s possible to adjust the policy to keep it in place.

There are many areas of personal finance, such as saving and building portfolios, that we can manage ourselves. For me, though, insurance is an area that requires professional help. I prefer to leave it to the experts sort out the nuances between products and providers. Keeping up with updates on conditions, definitions and prognoses is a full-time job, especially now.

At the end of last year, the Australian Prudential Regulation Authority (APRA) announced that income protection at an

“agreed value” was no longer sustainable for insurers and it recommended ceasing the sale of those products. People had until March 31 to sort out their insurances.

When I spoke to financial advisers about it, many said they had rushed to ensure that clients with lesser products applied for guaranteed agreed-value products. The guarantee or endorsement means that people can claim the agreed sum insured, even if there is a change in circumstances.

While insurers registered new clients before the cut-off date and they are accepting renewals on those policies, according to my adviser the renewal premiums are going through the roof.

There’s a lot happening in life insurance right now. During Covid-19, some insurers have provided premium relief by not charging for three months but keeping clients covered. Others have suspended premiums for three months but have not covered clients whose payments have been deferred. The policies differ.

Some insurers have put Covid-19 restrictions on policies, so now might be a good time to think about personally underwritten insurance (perhaps through an adviser) rather than an off-the-shelf product (inside super) so you can be sure about exactly what you’re covered for and, more importantly, what you’re not covered for.

A financial adviser can be a great help, but it’s important to choose wisely. Alternatively, do your own research or get a recommendation from a friend or colleague in a similar position to you.

And since insurance is such a big expense, you need also to research what type of cover you have with your super fund or employer or you can purchase off-the-shelf.

Paying top prices for ordinary products should be avoided.

Before cancelling, speak to an adviser to see if it’s possible to adjust the policy