Welcome to Finance and Fury’s ‘Say What Wednesday’ edition, where every week we answer questions from you guys. This week the question comes from Effy;
“I am a Chinese migrant living in Melbourne.
I do not recall if your podcast has covered insurance, such as life/accidental insurances. After some online research, I noticed that the variety and content of the insurances vary geographically. I am aware that many main land Chinese purchase insurance policies in Hong Kong as it is much more attractive. What is your understanding of the Australian insurance industry and what are the must-haves for everyday Australians?
I am trying to improve my financial intelligence by upgrading my skills to increase my earning capacity and learning to use financial products (property, shares, etc) to sustain and generate more passive income. It is not easy work, I have certainly made several mistakes and I feel I need more guidance.
Can you share some of your personal experiences on how you come to where you are today?
Looking forward to hearing anything from you and learning from you.
Insurance – What is it?
Personal (wealth) protection
Investment policies – the main objective of these policies is to facilitate the growth of capital by regular or single premiums. These are common in the U.S., China, RSA, and Australia 30 years ago, and referred to as “whole of life”. They have both an insurance component and an investment component (or, ‘surrender value’).
The cash value refers to the refund you’d receive for a portion of your paid premiums, paid as a lump sum if you cancelled your policy. However, because Whole Life includes both an insurance and cash value component it has become too expensive for many customers and was thus replaced with Term Life. Whole of Life Insurance is no longer available in Australia though it was really popular until 1991 when superannuation came into existence and started replacing the cover.
Protection policies – the most common form of insurance in Australia, protection policies are designed to provide a benefit, typically a lump sum payment, in the event of a specified occurrence. Typically called ‘term insurance’ in professional circles, they have as the name suggests, a term limit to them.
Core questions when looking at insurance
What type of policy do you need? That is to say, what events would you need to cover? For example, home insurance covers a house fire. But if you get hit by a car and are unable to work for 6 months what type of cover do you need?
The other question is, how much will you need if the event were to occur?
When trying to determine what types of covers you may need, consider the four common occurrences that might put you out of work or create financial stress in your life. These tend to be referred to in insurance contracts as ‘Conditions of payment’;
Do you need the funds now, or do you need them ongoing?
Each type of event will require different forms of payments due to duration of events and also, what you may need to cover.
How much insurance do you need?
The goal of life insurance is to provide a measure of financial security for your family if something happens. So, consider your financial situation and the standard of living you need to insure for in each event.
The Elephant in the room – Insurance Premiums
Why it is important to not be over insured
Some things to think about
Thanks for the Question Effy! If anyone else has a question you’d like answered on the podcast, go to financeandfury.com.au and hit us up on the contact page.