While I think I did really well in learning about insurances, particularly life insurances, for a first timer, there are some things I wish I had done differently.
Things I Wish I’d Done Differently When Researching Life Insurances
I applied for this early on in my insurance and general adulting marathon. As I hold this coverage via a super fund, what I wish I had done is made sure I understood the difference between fixed coverage and unitised. In my not-a-financial-planner level of understanding, fixed coverage amounts are what you see on those awful daytime TV ads. You know the ones, “Quick, we’re having a baby, buy insurance while decorating the baby’s room!” *insert eye roll here* Basically, fixed means if you apply for $500,000 of coverage, and you die, your beneficiary will get $500,000.
Unitised coverage is different. I have a feeling that unitised coverage is only available via superannuation funds, but again, not a financial planner or insurance expert so please don’t take my advice as it is just a random guess/assumption.
Whatever the case may be, I was applying for my life insurance via my super fund, and I selected unitised coverage. Which means that I bought x number of “units” of cover. However, what a unit is worth is actually dependent on your age. In my case, with my super fund, when you’re in your 30’s, like I am, it’s worth a decent sum. However, when you read further down the table of what it’s worth when you’re 50 years old, one unit is barely equivalent to an average annual income.
As an example (not using actual figures) if a unit was worth $350,000 as a 30 year old and you bought two of them, you’d be covered for $700,000. But the units decrease in value, so when you turn 50, you might find that a unit is only worth $50,000 (and for two units, a total of $100,000).
This unitised cover might work for you. It might not. I’m simply including it here because when I applied for the insurance, I didn’t understand it enough and chose the wrong thing for me. Right now, it doesn’t matter much. I’m still covered at the amount I want. But in the future I won’t be. Now it’s up to me if I want to increase the number of units I have or switch to fixed. I chose to switch to a fixed coverage amount.
I had to go through some small underwriting again to get both my life and TPD changed from unitised to fixed, and in doing that, they gave me an exclusion on the TPD for the bursitis I’ve had in my shoulder. Which seems weird as I have a damn office job, but I guess they assume I could become a labourer in the future? Somehow I don’t think so, but whatever.
Total And Permanent Disability Insurance
I took a guess at how much TPD I needed. And then realised a flaw in both what I had chosen and what I had applied for. It wasn’t much money. Of course it was a lot better than nothing, but I didn’t do the smart thing and know enough about it when I first applied to increase it. I was a bit over underwriting and peeing in cups but I did the responsible thing and increased it at the same time as my life insurance.
The other “thing” I’ve found is that the TPD calculators that exist only ask you for your current situation. Now, I’m NOT A FINANCIAL PLANNER, but if you know in the next few years it’s likely that you’ll be having children, buying a house or other major “life changes” like that, then, to me (based on logic, not qualifications!) you could leave yourself wildly under-insured.
Because we don’t own a house and have very little debt, the TPD calculators didn’t indicate that I would need much money. Um. Regardless of owning a house or not, I still would have to fund a freaking roof over my head for the rest of my life. It seems that based on some calculators, having a roof over your head is only a variable for home owners, not renters.
Anyway, I applied for an amount of TPD that would let me purchase a modest house if need be, so I would have a permanent roof over my head if I could never work again. Like many things, this speaks to individual preferences of risk, and I am quite risk adverse in this area, seeing as we are already a single income household. You might feel very differently about this/have a different financial situation.
While you can of course increase your insurance in the future (and from the PDSs I’ve read, some companies allow an automatic increase of your coverage amount on such “life events” as marriage and children and purchasing a house), there’s obviously no guarantee of acceptance or that the premiums will be affordable (eg if you developed a medical condition).
Your comfort level with all of these types of risk is up to you. I just think that it’s worth noting and asking questions about if this is something you’re looking into.
Of course, the flip side of this is knowing that most premiums go up each year, so if you comprehensively insure now, make sure you know you can afford the premiums to go up by (in my not a financial planner understanding) at least the rate of inflation each year.
Accept An Offer
As I ranted about recently, the goal posts for life-type insurances are so secretive. I turned down an offer for income protection as I thought the premium was too expensive for my budget. I went somewhere else, got rejected for stupid reasons, went back to the first place who rejected me based the results from the first rejection, but on an entirely different stupid reason. All within a few months.
In hindsight, I wish I’d known enough about how (crappy? dodgy? annoying?) insurers are and that even with fairly few health conditions in my past (I mean a sore shoulder, slightly low iron and tonsils snipped out are hardly rare and serious conditions FFS) that people will reject me for them. But how are you supposed to know this if the goal posts are secret and the ads on TV imply anyone can get these insurances? As you can tell, the industry shits me a bit.
One day I’ll fix up my income protection with a decent policy, but for now, I’m sticking with the default IP I have via my super. Primarily because I just don’t want to deal with any more damn insurers and their mystery freaking goalposts!
This post is about it for all the finance and insurance stuff I’ve been writing about, at least for the near future. I hope reading my experiences has helped you think about what you need, or gotten you to ask your broker/super fund/some smart qualified person about what you are covered for/what you might need.
Have you ever made a mistake in applying for life-type insurances?