What health insurance product is right for you?

When it comes to insurance I'm the type of person that is always over-insured.  It's not so much that I think insurance is a great deal...it's just that I tend to up-sell myself to premium products whenever I look at insurance.  This results in me paying far more than I really ought to be paying.

This is especially true when it comes to Health Insurance.  I currently have a very high level of hospital and extras cover when I barely use any of it.  I'm healthy, in shape and have no serious pre-existing or family conditions to worry about...I'm the last person that should have full cover on everything (I even have pregnancy cover...).

I obviously have had the wrong health insurance for a long time (despite promising myself to the contrary) I have done nothing about it and I continue to pay my exorbitant premiums.  However I was recently forced to re-look at my health insurance plans when I was considering my fiance's and my future financial position.

She doesn't have health insurance however she was going to get stuck with both the medicare levy surcharge as well as the lifetime health cover loading in one hit after marrying me (which would affect my tax as well) so we started looking at plans together.

Comparing health insurance plans is incredibly difficult

Let's state this up front.  Comparing health insurance plans is one of the most difficult things you can do.  They all offer different levels of cover, they exclude different procedures and offer different amounts back for the same procedure.  Some offer policy limits and some offer limits per person per year while others have lifetime limits on what you can claim.

With all of this complexity how on earth do you sort it all out?  I like to think that I'm pretty astute when it comes to finance but honestly comparing these plans was about the most difficult thing I have ever done.

I have put together the following step by step guide to help you work through the nightmare of health insurance products, premiums and offerings.  Some of this is very similar to my original post 'Choosing the Right Health Insurance' but this will go into more detail.

Step 1: Know what you want and what you need

Before you start looking at any products you need to know both what you need and what you want.  If you don't you're going to be inundated with choice and too much

The Lifetime Health Cover loading can really sting...so think about it before June 30

This post is written for Australians in the lead up to the end of the financial year.  If you turned 31 in the last financial year and don't have health insurance then you should really consider getting it otherwise the Lifetime Health Cover loading will bite you quite badly.

At the end of every financial year you will notice that health insurance companies start advertising quite heavily and advising their customers to get health cover before June 30 in order to avoid the Medicare Levy Surcharge.

I have written before about how you shouldn't get fooled by this.  The surcharge will apply for the percentage of the year that you don't have health insurance.  So if you get coverage on the 29th of June and earn above the threshold ($88,000 for singles and $176,000 for families) you are still going to have to pay the surcharge (1.0% - 1.5% depending on your income) for the 364 days you didn't have coverage.  You should still get the coverage to avoid the tax...but there is no real rush to it.

However the Lifetime Health Cover loading is time dependant and if you don't have health cover and you turned 31 in the last financial year...you definitely need to get health insurance before June 30!

What is the Lifetime Health Cover loading?

The Lifetime Health Cover loading is an initiative by the Australian government to encourage people to take out health insurance when they are still young and keep this health insurance going.  It stings you if you don't have health insurance now but if and when you decide to get it at some point later in your life.

The Lifetime Health Cover loading is a huge stick to encourage you to get health insurance before you turn 31.  Read on to find out how it works.

How does the Lifetime Health Cover loading work?

If you do not have hospital cover on the 1st of July following your 31st birthday (assuming you turned 31 after 1 July 2000) you will have to pay a loading when you do decide to take out health insurance later in life.

The loading is calculated as 2% for every year you are uninsured for every year you are over 30.  For example if you decide to first take out health insurance at age 40 you will have to pay 10 years x 2% = 20% more for your health insurance than someone who was covered the whole way through. This loading lasts for 10 years from the point you first get hospital cover. 

What if I don't want health insurance?

How to maximise the value of your free Credit Card Travel Insurance

I love to travel.  If I had a choice I would constantly be travelling.  One of the things that I always do whenever I travel is make sure I have the right travel insurance as getting sick in a foreign country can be financially disastrous.

Specialist travel insurers are great...

I had always used specialist travel insurers and have been served well by them.  I once booked a month long trip overseas with my brother and when he fell ill and was no longer able to travel I was able to get almost a full refund on all the flights and tours that I had booked until that point.

If you are looking for a specialist travel insurer I can highly recommend CoverMore insurance.  As long as you read the fine print and understand what you are covered for they are a well run, reputable insurer who does pay out when they say they will (that was my experience anyway).

...but this year I'm going to give my credit card insurance a go

I have had the option of free credit card travel insurance for a while but I had never used it.  I confess that I rarely trust anything that is free but I recently decided to look into it a bit more.  I have a Commonwealth Bank platinum credit card which offers free travel insurance and when I looked through the PDS for the free travel insurance (offered by Zurich Insurance) I realised that it was reasonably comprehensive.

It covered everything that CoverMore had offered me and more including unlimited medical coverage, an amount for delays, lost luggage, stolen goods and anything else I could think of.  Even better I found a few people who had actually claimed on their insurance and found that they paid out fairly and promptly as long as you met the conditions in their fine print.

Meeting the conditions was relatively easy.  All I had to do was spend at least $1,000 of my travel expenses on my credit card and I was covered for the whole trip.  The biggest downside was that it would not cover my girlfriend (although if you are married it covers your spouse and children as long as you spend $1,000 per person before you travel).

Make sure you maximise the benefit of your free credit card insurance when you purchase your holiday related expenses

Renewing your home insurance in 2013...don't forget the fire service levy

This post is for Victorians (in Australia) renewing their home insurance in 2013.  If you have already received your home insurance renewal you will have noticed something strange. Instead of the usual hikes in insurance which you then have to negotiate down your insurance may have been rather flat, or even dropped this year.

Before you go out and celebrate don't forget to adjust for the change in the fire service levy!

What is the change?

From 1 July 2013, the fire service levy (which you were already being charged) has changed from being part of your insurance cost to being part of your rates bill.

For once this is a political change that actually makes sense - it was recommended by the Victorian Bushfires Royal Commission and is fairer for a number of reasons including:

1. All property owners now have to contribute.  Previously if you didn't have insurance you didn't have to pay anything at all
2. People who insured their property for less used to pay less than people that fully insured their properties and so could game the system
3. It was previously at the insurers discretion how they recovered their costs so it was not always an equitable system
4. GST and stamp duty were charged 

That is some background to the why the system was changed but suffice to say that the change make sense and when I compare how much I used to pay and how much I pay now, the change was minimal so there is not that big a difference for me.

Why is it important to keep in mind when renewing your insurance?

If you do not take this into account you could get slugged with a large insurance premium increase and not even know it.  Typically we have some sort of idea what our insurance premium was last year and so if it does not change at all we are pretty happy about this.

However this is not the case this year.  Your insurance should be falling because you are no longer

How important is travel insurance?

Most of us realise that we need to get travel insurance when we travel.  Indeed some destinations require appropriate travel insurance before they will issue you a tourist visa and almost all guided tour groups require adequate travel insurance.

However, I think because we often see it as a requirement of travelling (just like a visa) and not a product with pros and cons, we often go for the cheapest option and not the one which is the most appropriate.

Why is travel insurance so important

There are several well know and documented reasons for having travel insurance however there are some areas of coverage that you may not know about (which actually come in useful)

1. It covers your hospital bill in the event that you get sick overseas
• This is the one that everyone knows is important
• Hospital and medical cover for citizens is normally subsidised however tourists and foreigners normally cop the full hit.  This is definitely the case in Australia where citizens and permanent residents pay virtually nothing for hospital treatments however tourists get charged thousands of dollars for the same operation
• This alone makes travel insurance worth it - it is not worth penny pinching on travel insurance (or on a provider that may not pay out) when there is the risk that you may get sick overseas
2. It often covers lost or stolen property
• Most people know that it

What is mortgage protection insurance?

If you ever take out a home loan banks will normally try and sell you mortgage protection insurance.  This post will cover what mortgage protection insurance is and whether you should have it.

Note that this is different from the mortgage insurance that banks make you take out if you have higher than their cut off LVR ratio (in Australia this is above 80%).

What is mortgage protection insurance

This is probably one of the easiest types of insurance to understand.  Quite simply it is an insurance product which pays your mortgage only in the event that

• You are totally and permanently disabled
• You are temporarily disabled and unable to work
• You lose your job (involuntary redundancy)

Note that this will not cover your medical expenses, nor will it provide an income for you to live on.  The money gets paid straight to the bank to cover your mortgage.

Should I get mortgage protection insurance?

As with all types of insurance it really comes down to your risk profile.  Most people take out this type of insurance to cover them in the event that they lose their job - that way they will still be able to keep their house and continue making payments. 

You need to weigh up your own situation when making a decision.  Things to consider include

1. What sort of other insurance cover do you have? 
• If you have TPD insurance and income protection insurance this should cover you if you are disabled (even for a short period of time)
• What you are essentially buying therefore is insurance in the event that you lose your job
2. How skilled are you and how easy would it be for you to get another job
• If your job is in high demand and it would be easy for you to get another job is it really worth paying an insurance premium for a product that you are barely able to use? 
• Only you will be able to answer the above question but for me the answer was no.
3. What sort of buffer do you have in your mortgage
• Some people only make the minimum mortgage repayments each month and so have no buffer at all
• I tend to keep a significant amount in my mortgage offset account which means that even if I did lose my job I have enough money in there to cover the mortgage repayments for 2 years without paying a cent
• Note that my buffer was not always this big - I just kept adding to it every month.  Really as long as I have a 6 month buffer I'm pretty comfortable.

I think that this is an 'extra' cover that only people who are particularly vulnerable or risk averse should have.  I think there are enough ways to mitigate the risks to make this insurance an excess but again if this insurance allows you to sleep better at night then you should probably go for it.

What are the things I should look out for when taking out mortgage protection insurance?

As with all insurance policies there are several things that you should look out for in the contract.  Read the contract and make sure that you understand exactly what you are buying:

1. Exclusion periods
• This relates to both how quickly you can claim after taking out the policy AND how quickly the policy starts to pay out. 
• The second point is actually the more important one because if there is a one to two month lag between claiming and payout then you need enough of a buffer to cover you during this period
2. Exclusions around claiming
• You need to understand what you can and cannot claim for
• If you are fired for reason will your insurance still cover you? 
3. Maximums (both on cover and time)
• The insurance cover is generally very high (~$10m) but may be lower so make sure you check this
• Also you need to see how long the insurance will continue to pay your mortgage

Overall

As mentioned above I think that people need to ask the question "do I really need mortgage protection insurance?".  I personally think that it is probably one step too far - I think having income protection insurance as well as TPD insurance are more than enough however given the size of the market it appears that others feel differently.

Do you have mortgage protection insurance?  Do you find it good value for money and have you ever claimed?  Please comment below.

You May Also Like:
What is income protection insurance?
What is TPD insurance?
Should I get life insurance?
Choosing the right health insurance

What is income protection insurance?

In looking at various forms of person insurance so far I have covered

• Life Insurance: An insurance that pays out in the event that you pass away.  In my previous post I mentioned that people who have dependents should definitely have life insurance but singles and those who are financial settled probably do not need it.
• TPD Insurance: An insurance that pays out in the event that you are so disabled that you are no longer able to work (but does not pay out if you pass away).  In my previous post I had mentioned that I thought that EVERYONE should have this type of insurance, whether you have dependents or not.

This post will cover income protection insurance and whether you should consider investing in it. 

What is income protection insurance?

Generally speaking income protection insurance is a benefit paid on a monthly basis which pays you a certain percentage of your income (generally 75%) of your income and covers you for accidents, illnesses and major traumas. 

Unlike TPD insurance it does not require that you not be able to work ever again but rather pays you for the time that you are off work until you return to work.  It normally comes with a waiting period.  If you cannot return to work it pays you until retirement age (in Australia this is 65).  It is designed as an 'interim insurance' rather than a final type of payout that TPD and life insurance payouts tend to be.

Should I get income protection insurance?

Income protection insurance is often provided by employers (especially multinationals) and Australia this is normally done through your superannuation package.  It is normally bundled with Life and or TPD insurance to provide 'all situations' type cover.

In the event that it is not automatically provided for you there are several things that you need to consider before getting income protection insurance:

1. If I don't work for a period of time, can I still pay the mortgage, put food on the table and meet all the other necessary expenditures?
2. How long would any savings I have last?
3. How old am I and how long is it likely to cover me for?

If you have sufficient savings set aside you probably do not need income protection insurance but you should always ask the second question because you need to consider not only if you could last a few months without your income but if you could last a few years (in case you get really sick but not an event that TPD covers).

This is a type of insurance which is also age dependent.  Because it only lasts until your retirement age (65), it probably isn't worth getting if you are in your 60s...at this point you are probably pretty close to being set up and if you get really ill it is not going to cover you for very long.

Obviously it is dependent for every person but if you are young and not yet set up it is probably something that you should really consider getting.

What are the the things I should watch out for in the policy?

The biggest things to watch out for (other than the cost obviously) are:

1. The waiting period between when you actually claim and when you start getting paid.  Sometimes this is several months and you need to make sure you understand exactly when and what you need to get paid.
2. Any specific exclusions.  Exclusions are often the most overlooked part of insurance contracts but

What is TPD Insurance?

With all the different types of insurance out there it is hard to know one from the other.  In my last post I outlined what life insurance was, the different types and whether you should think about getting it or not.  In this post I will be focusing on Total and Permanent Disability Insurance.

What is Total and Permanent Disability (TPD) Insurance?

TPD Insurance is designed for those situations where a persona is completely disabled and unable to work again.  It usually provides a lump sum payment or annuity to take care of you for the rest of your life. 

Note that TPD insurance is not income protection insurance - it does not protect you in the event that you can do some job (even if you are not trained for it).  For example if you are a tradesman or a chef and are injured and are unable to return to your profession but are able to do administration work sitting at a desk (even if you have never done it before) then typically TPD Insurance will not cover this. 

Note that policies are not completely standardised and you need to read a policy very carefully before you sign it.  For example

• A clause saying that the loss needs to be 'total physical loss' means that the loss has to be in pairs (e.g. both eyes, both limbs or one eye and one limb). 
• The 'inability to earn' clause is a fairly common clause in TPD policies and means that you are not able to do ANY job at all (see the example above)

Do I really need TPD Insurance?

In my post on life insurance I outlined those situations in which you really should have life insurance and those where it probably is unnecessary.  The answer basically came down to whether you had dependents who needed you to work or your income to survive or not struggle. 

TPD is different - I think all people should have some form of TPD insurance.  This is because when you are injured in such a way that you are never able to support yourself again you need to find a way to live for the rest of your life.  If you have dependents this is even more important because not only will they struggle without your income, you become a liability. TPD Insurance provides cover for you.

Note that I think you should get it even if you do not have dependents or family because you do need to find a way to look after yourself for the rest of your life and unless you are wealthy enough to stop working today and never work another day in your life, the chances are that you will need the money to survive.

If your employer offers TPD Insurance through your superannuation you should take it

Many employers offer TPD Insurance through superannuation plans at no cost to the employee.  I think you should always take this up because it provides you with a cost free fall back.  Of course

Why your home insurance premium has increased so much and how to get it down

I have previously done posts on making sure that you negotiate your car insurance down as insurance companies often try and gouge customers around renewal time and offer much better deals to those who are actively shopping around.  The same is true for home insurance In fact they often have different pricing schedules for those that are existing customers and those that are new customers.

This post will deal with home insurance and why your insurance premium may have increased by so much in the past year.  If you have asked the question 'Why is my home insurance so much more expensive this year?' then this post could be for you.

What is your home insurance based on

Insurance premiums are statistical equations with a price attached to every piece of information that the insurer can get off you.  This is why those online quotes require so much information from you - it is so that the insurer can estimate the probability of loss on your account and thus price your policy so they can make a profit.  Thus with home insurance it is influenced by the following factors

• The area the house is in (is it subject to flooding, fires, high theft area etc)
• The owners themselves - how likely are they to claim, what is their history like
• The security precautions the house has in place
• The amount the house is insured for
• The amount the contents are insured for

There are lots of other factors beside these and insurance companies have statistical models for all of them  (e.g. their models will tell them whether houses in courts more or less likely to get robbed than those on busy streets etc.)

Nothing has changed since last year - so why has my home insurance premium increased by so much?

This is the thing that puzzles most of us out there who buy insurance.  We didn't claim over the year, our circumstances haven't changed nor has the area we lived in changed substantially - so why has my premium increased by 20 - 30% over the year?

The answer comes down to a few factors which I have listed below:

• Natural inflation type factors
• Prices naturally increase from year to year so there should always be some element of price increase between years
• This should be around the rate of inflation but will often run at wage inflation as insurance companies probably figure that if people are paying the same proportion of their income in insurance they will not object too much
• Thus an increase of 2 - 3% should be expected
• The amount your property is covered for
• This is a sneaky thing that the insurance companies do although they state it very clearly but most of us ignore it
• On your insurance renewal form you will notice that every year the suggested coverage increases significantly.  For a house it really should not increase more than inflation or slightly above that (i.e. by about ~4% per year) but if you get out your old policy renewal documents you will see that insurers try and increase the coverage by a lot more than that every year
• My insurer over the last 2 years has increased my coverage by 12% per year.  2 years ago I did a detailed estimate of what it would cost to fully replace my house and I estimated that it would cost $250,000.  The insurer is suggesting that 2 years later that this has increased to $311,000.  I do not think that the cost of replacing my house has changed that much
• If the insurer has made large losses in some areas they may seek to recover the cost across their whole book
• You will notice this particularly if there has been a natural disaster in one part of the country, insurers will increase the prices for all homes etc across the country to try and compensate
• Unfortunately there is not a lot you can do about this.

Can I do anything to keep my premium down?

Yes there are a few things you can do to keep it down but you should keep in mind that you will never be able to keep it at the same price.  Things you can do include:

Should I get life insurance?

This post will deal with the question of whether you should or should not get life insurance.  I will leave the question of what type of life insurance you should get for a later date.  However for completeness I have outlined the type of life insurance here:

• Term life insurance provides coverage for a specified number of years ( normally until you reach a certain age ).  This is the most commonly available type of life insurance.  There is no accumulation of cash and therefore you cannot exchange it for cash.
• Whole life coverage provides for a flat premium over your whole life.  It provides guaranteed death benefits, cash values and premiums.
• Universal life coverage is a new product in the insurance space and combines a term policy and a whole life policy which when combined can give you a more efficient outcome than just having one or the other.  As yet these are not commonly available
• Endowment policies are paid out whether the insured lives or dies.  There is a specified age at which, if the insured is still living the policy starts to pay out cash.

Should I get life insurance?

Getting back to the question of whether you should get life insurance the answer is that it really depends on you individual circumstances. It all comes down to whether , when you die, there are people who will be significantly worse off financially without you present.  it really is a decision you need yo be making as a family or couple as it s your partner and other dependents who will be most affected by your death.

You should very seriously consider getting life insurance if:

• You have a family and are the primary breadwinner and without your income your partner would really struggle
• If you have a mortgage and live with your partner and they would struggle to keep up with the repayments if you were not around
• If you support elderly parents or other relatives
• If you do not have sufficient savings such that your dependents would struggle without you there.

As you can see this type of insurance has very little to do with you it rather to do with those to whom you have a responsibility towards.  Conversely therefore you do not need life insurance if

• You are single with no dependents
• Your family is sufficiently well set up with savings and a paid off mortgage such that they would not really struggle without you there

Even if my family is well set up isn't life insurance a nice backstop to have?

Everyone has different views on this point and it probably has to do with your level of risk aversion. 

• My view is that life insurance is not cheap. 
• It provides a handy backstop in the event that you are not prepared or are at a stage in your life where you are just building your financial foundations. 
• However if you are well set up or single then it is using money that you could otherwise be enjoying today while you are still alive instead of having over protection for when you are no longer around.

Next time I will be writing a post on what type of insurance you should get and how much you should cover yourself for.

Do you use life protection insurance and do you think you are under or over prepared in the event you or your partner pass away?  

Should I use a general insurer or a specialist insurer for my landlord's protection insurance?

This post falls within my Investing in Real Estate series which attempts to cover all aspects of investing in real estate.   Last time I covered all the insurance that you should have as a landlord including home insurance, contents insurance and landlord's protection insurance.

In this post I will weigh the pros and cons of having a specialist landlord protection insurer versus getting the same protection through a large general insurer. 

Pros of a getting landlord protection through a specialist insurer

• Premiums are generally more cheaper for the landlord protection element of the insurance:  Note that difference is not often significant so this should not be your primary factor in making your decision.  The cost is not relevant if they are not going to cover you in the event that you need them
• They have a reputation for paying out more often and quicker than general insurers:  Landlords protection insurance is often the core of their business and where they make their money.  They cannot afford to be seen as being unwilling to pay out claims to landlords.  A bad reputation in this area is deadly to their business.
• You will normally get staff who know what they are talking about when you call:  This again goes to the point of this being their primary business

Pros of getting landlord protection through a general insurer

By general insurer I am referring to those large insurers who offer almost every conceivable form of insurance such as auto insurance, home and contents insurance, life and everything in between.  Although the pros of a specialist insurer for the landlord protection part of your insurance may seem tempting from the pros above there are definite benefits to going with a general insurer including:

• Ability to bundle all your policies:  I would always get the house and contents part of the insurance with a large general insurer.  They are almost always cheaper and this tends to be what they focus on.  Often they will let you bundle in landlord insurance for not a lot extra which makes it easier to keep track of your policies.  Also in the event something happens I imagine it would be easier to just deal with the one insurance company
• Confidence that the insurer will be around when you need them: This is purely a size and confidence thing.  You are almost positive that your general insurer will still be around in the event you need them.  Specialist insurers tend to be smaller and leaner and although I have no doubt that they are re-insured and will probably be there if you need them there is a definite 'sleep at night factor' to having a large insurer
• You can save money on your other policies:  Almost all insures offer discounts if you have more than one policy with them.  Having your landlord policy with a general insurer may get you a discount on your auto insurance.  Note that this is just an added benefit and should not be the primary reason you choose one insurer.

Other considerations

• Do not insure your house and contents with a specialist landlord insurer: 
• I have said this above but they do not specialise in this area, the quotes process is often tedious and on a 'case by case' basis and although they may have a good reputation for landlord protection insurer it is often hard to find out what they are like with home and contents insurance
• Always look at the reputation of the firm you are going with when it comes to paying out claims: 
• There is no point going with the cheapest firm if they are not going to pay out when you need them.  Look at what other property investors in your area use and google the companies.  Keep in mind that when people write reviews it is because they are unhappy.  It is a weighing process but you will often find interesting information on the policies through other investors' gripes.

What do I do?

Investing in Real Estate: What Insurance should you have?

This post forms part of my Investing in Real Estate series which attempts to cover every facet of owning an investment property, from researching to negotiating, to financing and renovating your property and a variety of other topics.  This post will cover insuring your property and the types of insurance that you should have as a real estate investor.

There are three basic types of real estate that every investor should have for their investment property

• Home insurance:  This is for the building itself
• Contents insurance: Although you may not have any contents in the house you may be surprised what counts as 'contents'
• Landlord protection insurance:  Insurance against the possibility of damage and other financial woes your tenants may cause your property

Home Insurance

Most people would never question buying home insurance for their investment property.  They insure their own houses, cars etc so it just makes sense to insure your investment property as well.  When insuring your property (and this is true for your own home as well) you should look out for:

• Are you adequately covered?  What would it actually cost to repair your house - make sure that you aren't under insured.  I think it's safer to be a little on the high side of insurance cover.  Home insurance premiums are generally pretty cheap so adding a bit more doesn't do any harm.
• "New for old replacement" - This looks particularly attractive to some people who cannot work out how much they should insure their house for.  It promises to replace all the damaged fittings with brand new products.  Although this sounds amazing there is a sting in the tail - it says nothing about quality.  There is every possibility that the quality will be the same but I'm not willing to risk it so I go for fixed cover packages.
• Check for specific exclusions:  Often there are specific exclusions to cover which you wont see unless you read the fine print of an amazingly dense product disclosure statement.  A common exclusion is for floods and flood damage.  Australians would probably see the problem with this straight away given recent events (we have had particularly bad flooding recently across the country in areas that have not had an issue in the past) so just because it hasn't happened before doesn't mean it cant happen.

Contents insurance

Most investors try and save a bit of money by not having contents insurance.  They say that since they don't have contents in the property and the tenants should be taking out their own contents insurance that this is an unnecessary insurance cover.  However there are things which you consider part of the house which count as contents

• Carpets for example are typically classified as 'contents' and not part of the house.  It is a significant cost to bear if you have to replace these yourself when you thought the insurance would cover them
• Electrical products (included fitted products) such as light shades, dishwashers etc also count as contents
• Have a look at home insurance exclusions and you should be able to see what you need to cover with contents insurance

Insurance: How does the medicare levy surcharge work?

A quick pre-tax time tip re health insurance.  Every single year before June 30 health insurers go on an advertising binge telling prospective customers to 'get in before June 30'.  This is aimed at those who, because they earn above a certain limit and do not have private health insurance, are charged the medicare levy surcharge. 

However please note that the surcharge you pay is based on the number of days covered by health insurance during the year.  Getting health insurance right before June 30 does not eliminate your obligation to pay the surcharge for the rest of the year.

For example if you were to get health insurance on the 26th of June and earned above the threshold (e.g. assume you earned $100,000 and were a single person) then your Medicare levy surcharge would for 2011 / 2012 would then be:

• Number of days uncovered / Days in a year = 361 / 365 = 98.9%
• MLS surcharge on income = 1% * 100,000 = $1,000
• MLS obligation for the tax year = $1,000 * 98.9% = $989

So there is no real incentive to take up health insurance before the end of the financial year but there is definetely incentive to take it up quickly. Further the intoduction of a tiered surcharge system means that all middle and high income earners should look very seriously at what health insurance would best suit them.

Background - how does the Medicare Levy Surcharge work?

The medicare levy surcharge is a tax based incentive to get insurance.  It works as a big stick - if you earn above a certain limit and do not have health insurance then you pay an extra tax (which can be quite steep).  I have outlined below the incomes at which you become liable for the surcharge for the 2011 / 2012 financial year (note that income includes gross wage, reportable fringe benefits and employer superannuation contributions)

Category	Income Threshold	Surcharge
Single, No dependents	$80,000	1%
Single, Depdendent children	$160,000	1%
Couple	$160,000	1%

In the 2012 / 2013 year there has been a change to the way in which the MLS is calculated including a significant increase in the MLS if you do not have private health insurance. There was also the introduction of a tiered system - Below I have outlined the new MLS thresholds and surcharges.

	Unchanged	Tier 1	Tier 2	Tier 3
Singles	<$84,000	$84,001 - $97,000	$97,001 - $130,000	>$130,000
Families	<$168,000	$168,001 - $194,000	$194,001 - $260,000	>$260,000
Surcharge	0.0%	1.0%	1.25%	1.5%

Tax time: Pre-pay your health insurance before 30 June for huge savings

This is once again a post for Australian taxpayers.  If you are an Australian taxpayer you would have received a letter in the mail which outlines the changes to the health insurance regime.  It is possible to still receive the 30% health insurance rebate for the 2012 / 2013 tax year if you pay the premium by 30 June 2012.

Previously everyone was entitled to a 30% rebate on their health insurance.  After the most recently federal budget however (you can see my gripe here) this has changed with the rebate being abolished for 'high' income earners and reduced for middle income earners.  The changes can be seen in the attached table:

	Unchanged	Tier 1	Tier 2	Tier 3
Singles	$84,000 or less	$84,001-97,000	$97,001-130,000	$130,001 or more
Families	$168,000 or less	$168,001-194,000	$194,001-260,000	$260,001 or more
Rebate
Aged under 65	30%	20%	10%	0%
Aged 65-69	35%	25%	15%	0%
Aged 70 or over	40%	30%	20%	0%
Medicare levy surcharge
Rate	0.0%	1.0%	1.25%	1.5%

If you call into one of the categories where your rebate has been reduced it is possible to still get the rebate for the 2012 - 2013 tax year by pre-paying your health insurance premiums before June 30.  Note that the payment has to be received by your health insurer by then.  The Australian Tax Office has confirmed that you can do this so it is perfectly legal and will save most people a significant amount of money (~$300 - $400 on a regular single persons insurance premiums)

I would normally have to do a time value of money calculation to work out whether this would put me ahead however given that I am standing to lose the full rebate there is no way known I could make a 30% return in a year.  If you were only standing to lose 10% of the rebate (Tier 1) then this would be a borderline decision.  Tier 2 and above should almost always prepay and get the rebate.

Choosing the right Health Insurance

Health insurance, like investments are one of those products where your own personal situation determines the health insurance that is right for you.  It depends on age, personal well being, as well as habits such as the amount of exercise one does as well as do you smoke etc.

In some countries the health system is so good that private health insurance is unnecessary.  In Australia the public health system is free and very good however there is a major tax penalty for not having health insurance if you earn above $80,000 as a single or $160,000 as a couple (1% extra tax).  In other countries the health system is such that it is almost essential to have health insurance to be able to have peace of mind that they will not be sent broke if they ever get sick.

The issue of having adequate cover was brought home to me because someone close to me was diagnosed with cancer and thankfully they had the right level of cover which meant that we were not worried about the financial side of it at all and the health insurance fund that we had was great (it was HCF).

Health insurance is (at the most general level) made up of Hospital cover and Extras cover:

• Hospital cover is essential: This is one area that should not be skimped on.  Hospital cover and the ability to get your own room or admission to a private hospital without extra charges (or very low charges is key).  I would make a table of all the health funds that provide coverage in your area, find out which hospitals they cover and how long the coverage is for (or after how many days it kicks in)
• Extras are where the bells and whistles come in:  Generally speaking if you have the same level of hospital cover at different funds the prices will be pretty similar.  Health insurance funds tend to differentiate themselves with the extras.  Extras are however the things that are most subjective.
• Always check the exclusions:  Exclusions are almost always in the fine print that no one wants to read but you do not want to get a serious illness and then find out that you have been paying your premiums for years for no benefit.  For myself - I try and make sure that the really obvious things are not excluded (cancer, heart disease etc.) and at the same time try and find an insurer which excludes as little as possible.
• Check the waiting periods: Most funds have waiting periods before you can claim anything however many offer specials with no waiting period and you can immediately benefit (such as by buying new glasses / going to the dentist etc)

Now that you have found several policies that you think work for you on hospital cover and the exclusions are not too bad then the next step is to work out how much you want to pay for the extras.  I listed a few questions below which should help narrow the field.

Car insurance: Discount or regular insurance

In my previous post on getting a great deal on car insurance I mentioned that I only considered the regular / full price (or expensive) car insurance and did not really consider discount car insurance due to the peace of mind that comes with a large reputable insurer.

However, on later reflection, and as I posted more about the benefits of a discount broker (Interactive Brokers) I thought I would investigate to see whether a discount car insurer could offer the same value as a discount broker. I accepted the fact that for the lower price you don't get all the frills however I set out to see whether it was worth it. A couple of background facts about my situation: I own my own car, I have no loan on it, I live in a suburb which attracts a relatively high car insurance premium and I have never had an 'at fault' claim in ~8 years of driving.

The full service insurers were offering me insurance premiums ranging from $1,100 to $3,000. The discount insurers were significantly cheap and for the same level of cover were offering premiums of between $600 - $800. There were several traps however:

• Some insurers (such as Bingle) make you pay the excess whenever you claim (and not only when you are at fault. This means that you're paying the ~$700 premium and even if you do nothing wrong you have to fork out an extra $400 - $600



• Other insurers are new and trying to gain market share (e.g. Progressive Direct, a subsidiary of US insurer Progressive, is offering really cheap rates in order to gain market share in Australia). Their PDS looks great and they look like they are offering the same service as the big insurers for a much lower price. Ordinarily this is exactly what I'd be looking for.

The reason I didn't go with Progressive Direct is that I have no idea what they are like when you claim. With most insurers all you need to do is google for product reviews and you get a general idea what they are like on claims. Some have relatively good reputations (e.g. GIO, AAMI) and others tend to get ripped to shreds by consumers (e.g. Bingle). You do not get the ability to look up what a new insurer is like and so are taking a risk that they will not pay out which makes your insurance premium meaningless.


The reason I ended up sticking with the full service insurer is peace of mind. The more I looked into it the more I realised the comparison with discount brokers was not warranted. With a discount broker you are getting the discount for your own research and financial savvy. With a discount insurer you are paying less because you take on the risk that they will refuse to pay out for an unexpected / unforeseen reason or that they stick you with costs you do not expect. In the insurance case you have no control over the company's policies and whether they will pay out so what you are paying for with a full service broker is a reputation for fair dealing.

Car Insurance - getting a great deal

It came time (once again) for me to renew my car insurance and I wasnt surprised to see a rather large increase in my premium. The floods in other parts of the country coupled with extreme whether conditions were putting pressure on insurers profits and no doubt they were going to try and make this up with premiums across the board.

I have no real loyalty to insurance companies (other than sticking to the big ones as I dont want to be fighting with small internet based insurance companies like Bingle, Budget Direct and Youi if and when I actually do have an accident). I decided to look around for a better deal. I know that a big deal is made of cost comparison websites such as iselect however I found that they do not cover all insurance companies. I suspect that they only cover those that give them commissions for referral which is fine from a business point of view but it also means that I'm definetely not going to use them!

Having established there was no quicker way of doing it, I then went to all the insurers that I was willing to consider (AAMI, RACV, GIO, Allianz etc) and did the online quotes for all of them. Allianz came out ~$100 cheaper for comprehensive insurance than my current insurer (AAMI) was offering me. However I called up AAMI to see if they would price match and they did relatively easily and without hassle.

The reason that you're able to save a fair bit of money by doing this is that insurers seem to love offering great deals to get new customers. An existing customer however is much more valuable from a profitability point of view (churn is expensive) so insurers are always willing to drop their premiums. Moral of the story - never ever renew your insurance premium at the offered rate!