The Barefoot Investor’s Guide to Sorting Your Insurance
There’s a lot of rubbish written on the internet about insurance …
And some of it mentions me!
Why?
Well, there’s big money to be made in selling insurance, so there’s no shortage of people trying.And that’s why plenty of insurance salespeople use my name — by writing clickbait articles — to sell their wares.
Yet you’re smart enough to be at the original source — my website — and I’ve got NOTHING to sell you.
So, grab a cuppa and let me walk you through the crazy world of insurance!
Here’s the deal: when it comes to insurance, I’ve got form.
See, the day our house burned down was the worst day of my family’s life.
But it could have been a lot worse. According to CommBank, for every family like ours that loses its home in a fire, four families lose their home because of the death of a breadwinner, and 48 families lose their home because of a breadwinner becoming disabled.
Don’t think it will happen to you?
Well, according to CommBank (again), two in five Australians will suffer a critical illness by the age of 65.
The bottom line is this: you can do all the right things, you can have everything sorted, and something you have no control over can wipe you out financially.
That’s why you need insurance.
I wrote about insurance in my book — but a lot of people (mainly insurance brokers) have decided there’s a lot of money in targeting people who are searching my name on Google, and they like to write posts and videos about all the kinds of insurance I recommend.
Obviously, you shouldn’t be taking your insurance advice from random people on the internet — especially when they have a vested interest in the insurance you buy!
So while I can’t control what people say … I can set you straight on what I really have to say about various insurances.
Barefoot’s Golden Rules of Insurance
Rule 1: Only insure against things that can kill you financially
Your iPhone breaking won’t kill you financially, so don’t take out extended warranty insurance.
But you should insure against things like your house burning down, getting robbed, your car getting into a bingle, travelling overseas and getting sick, going to hospital, death or permanent disablement, and being unable to work.
Rule 2: Choose a higher excess
In the event of a claim, you can choose to pay an initial amount towards your costs, which is known as an ‘excess’. The higher your excess, the lower your premium. And if you have Mojo, you can afford to boost your excess and lower your premium.
Rule 3: Don’t automatically pay your insurance premium each year
Insurance companies behave like cheating husbands — sweet-talking new customers with discounts and gifts while treating their faithful wives at home (loyal customers) like dirt. So, instead of automatically paying your renewal each time you get a bill, Google the latest deals and call them up and tell them you’re thinking of switching. It’s the easiest money you’ll make all year.
What health insurance does the Barefoot Investor recommend?
Contrary to what some people have said about me, I don’t recommend one particular fund for anyone.
However, I do have some general tips on getting better health cover for your money:
If you’re under the age of 31, or you’re earning under $90,000 as a single person (or under $180,000 as a family), you might not even need private health cover.
Here’s the thing: Australia has one of the best public health systems on the planet. Seriously. Get sick, or have an accident, and you’ll get five-star treatment in a public hospital, free of charge.
However, if you’re earning over $90,000 as a single, or over $180,000 as a couple, you’ll get hit with extra tax (called the Medicare Levy Surcharge) which is basically the same as the cost of private cover.
Also, if you want your family to go to the front of the queue and choose your own doctor, you’ll need to go private.
Right, so if you do need private health insurance, here are my golden rules to getting it cheaper:
I purchase top-level ‘comprehensive’ private hospital insurance
I get the best hospital cover I can for my money.I don’t purchase extras or ‘combined’ healthcare cover
Most extras policies can cost you hundreds of bucks extra per year whether you claim or not. Don’t believe me? Ring your fund and request an annual claim statement. Then ask, “If I switched to a comparable ‘hospital only’ policy, how much would I save each year?”I stay away from iSelect.
‘Comparison sites’ like iSelect or those creepy meerkats are just sales pages tarted up to look like comparison sites. They don’t let you pick from all the insurers on the market. So, you should instead go to the Government’s search engine, PrivateHealth.gov.au, which lists every health provider.
What life/total permanent disability/income protection insurance does the Barefoot Investor recommend?
Your most powerful financial asset isn’t your home or your car: it’s your ability to earn an income.
That’s why it’s important to insure against losing it, through life insurance (if you die), total permanent disability insurance (if you’re nearly dead), and income protection insurance (if you’re unable to work).
Now, chances are you already have life and TPD insurance through your super fund.
However, it’s probably not enough.
As a rule of thumb, you should be looking at roughly 10‒12 times your annual income, if you have young kids. And if you’re a stay-at-home mum, you can and should get life cover and total permanent disability insurance as well, because if you weren’t around all hell would break loose and your hubby would need to employ two people to cover all the work you do.
You can get insurance inside or outside of superannuation. My view is that most people should look at increasing their insurance through their super fund. The reason is that the premiums are paid out of your super savings and not your regular income, which may be tight.
However, this isn’t a blanket recommendation. There are pros and cons either way, and this might not be best for you. An advisor will be able to guide you through which is best for you.
What about trauma insurance?
Some people (mostly insurance brokers who have a vested interest in getting you to buy more insurance) have criticised me for not recommending everyone take out what is called ‘trauma insurance’.
With trauma insurance, if you suffer a major trauma like getting cancer or having a stroke or a heart attack, your insurer will pay you a lump sum that you have insured for.
Personally, having adequate levels of life, TPD and income protection was enough of a safeguard for me. Then, I focused on moving through the Barefoot Steps (boosting my Mojo and my super), which builds financial security too.
But you may be different. Ultimately it’s a decision you should weigh up with your advisor.Just keep in the back of your mind that most insurance is sold rather than bought, and that trauma insurance will be a lucrative earner for the advisor … often netting them the entire first year’s premium and then annual kickbacks (ask them how much they’ll earn as a basis for the recommendation).
Don’t listen to random strangers on the internet
Look. The fact is, life insurance is a complex subject and you should get professional advice.
Do not, under any circumstances, take your life insurance advice from random people on the internet.
When it comes to life, TPD or income protection insurance, here’s my real recommendation: Call your super fund and ask to speak to a number of their financial advisors (date a few!) to find someone who can help you sort out your insurance.
What home insurance does the Barefoot Investor recommend?
Picture me walking through your house with a cigarette lighter, randomly setting alight your stuff.
You stare at me, horrified.
And then I cockily strut right up to you — until I’m right up in your grill — and I mockingly whisper:
“Oh? You need to replace this fancy underwear of yours, do you? WELL, WHY DIDN’T YOU INSURE IT THEN?!”
The bottom line is this: if you wear underwear, you need insurance.
So what I want you to do — right now — is take out your phone and ask Siri to remind you to call your insurance company next Wednesday (hump day) and make sure you have your backside covered.
In the past I’ve advocated people take out what’s called ‘total replacement’ insurance. However, the truth is that fewer insurers are offering it these days. So you’re most likely to have what’s called a ‘sum insured’ policy — and it’s up to you to ensure that sum is adequate.
Most insurers have an online calculator to help you work it out. But the key move here is to ring up your insurance company and ask them how much you’re covered for and what events you can claim for (fire? flood? a weirdo breaking into your home?). As a bonus, your conversation will be recorded, which you can call on if you ever have to make a claim.
This is important — you should always seek independent financial advice before acting, especially when it comes to insurance. This is one area where it’s worth paying for it to be done right.