consolidating lost super

Discovering, claiming and consolidating lost super

31 Aug, 2016

Considering how hard we work for our money, it’s quite astounding that, according to the ATO, there is over $12.5 billion in lost super in Australia. Consolidating lost super is, therefore, something that’s well worth doing.

You can see how it might be easy to lose track of your super funds, especially if you’re one of the some 1.8 million Australians who change jobs at least once a year. But if you end up with several different super funds, you will find it hard to manage them and will end up paying much more than you need to in account fees.

 

Consolidating your super funds

Having one single super account makes it easier for you to keep on top of employer contributions, fees, insurance cover and fund performance. It’s therefore advisable to roll any super you have from your past jobs into your current account.

The ATO has started doing this automatically for accounts with low balances (originally below $1,000 but increasing to $10,000) by sharing details of these accounts with members’ current funds.

Where a superannuation fund holds multiple accounts for the same individual, they must consolidate those accounts where possible so that the member doesn’t have to pay unnecessary charges on duplicate fees.

Many funds offer a ‘consolidation’ service to make the process easier, but you should always check how much is charged for this before going ahead. Also find out where you stand with any benefits attached to your account. In particular, make sure you have adequate life insurance in place if you close down a fund where you previously had cover.

Changing your name, your address, or your job (or any combination of the three) can cause your previous super to be lost if it can’t be linked back to you. Remember to always update your details with your super funds – or, to make life easier – just consolidate them with your current fund.

 

Claiming lost super

If you believe you have lost or unclaimed superannuation, the government’s SuperSeeker tool (www.ato.gov.au/superseeker) can help you track it down. This free online super search tool from the ATO only takes a couple of minutes – just supply your name, date of birth and TFN to find out if there is a match.

Any lost or unclaimed accounts will either appear on the lost members register (LMR) and be held by the relevant super fund, or will be held by the ATO.

If you find that you have an account on the LMR, you should provide your updated personal details to the super fund and arrange for your funds to be consolidated. If your balance is below $200 and you meet certain criteria, you will be able to withdraw your benefit.

For a few years now, the ATO has been taking control of lost or inactive superannuation accounts with low balances (currently under $2,500 but increasing to $3,000 in 2017). They will pay interest on all lost super accounts which are later reclaimed.

 

Summary of claiming and consolidating lost super:

  • The easiest and most cost-effective way to manage your super funds is to consolidate them into your current one
  • The ATO may do this for you if you have a low balance and all your details are up to date. If your fund offers a service for consolidating lost super, be sure to check the associated cost
  • If you hold multiple accounts with the same super fund they must consolidate these where possible
  • Lost super can be claimed from your super fund or, if the account has a low balance, from the ATO
  • Always update your details with your super fund if you change your name, address or job

 

tax on death benefits

Minimising tax on death benefits from superannuation

29 Aug, 2016

Superannuation has been compulsory for over 20 years, and this has resulted in larger retirement nest eggs which must be considered in estate planning. If a person dies prematurely, there will likely be a large payout to their family members, especially if they have a life insurance policy attached to their super fund. There are ways to minimise tax on death benefits in certain situations.

 

Dealing with superannuation upon death

When you die, your superannuation fund does not form part of your deceased estate but instead is handled by your fund’s trustee. They may distribute your super benefits however they see fit, unless you have a ‘binding nomination’ in place.

A binding nomination is made with your super fund’s trustee to show how you want your funds dealt with upon your death. This is only valid for three years, so you must ensure you put a new one in place after this period. A binding nomination must be witnessed by two independent individuals.

 

Tax on death benefits

Although there is no inheritance tax in Australia, this doesn’t mean death benefits are paid completely tax-free.

A death benefit paid to a dependant (e.g. a spouse or minor child) is tax-free and can be paid as a lump sum or income stream.

A non-dependant beneficiary may only receive a lump sum payment and a rate of 17% will apply to the taxed element of this while any untaxed element is subject to 32% tax.

Longer life expectancies and larger super funds are resulting in a growing number of financially independent adults being paid a superannuation death benefit from a parent.

Parents may set up a child-allocated pension as a way to pass on their superannuation as well as any linked life insurance. A child pension can only be activated if the child listed as a beneficiary on the parent’s super account.

 

Other ways to minimise tax

If you don’t have a dependant who can inherit your death benefit tax-free, there are other ways to minimise the amount of tax due upon your death. These should be discussed with a financial adviser.

If you are suffering from a terminal illness, you may have the option of withdrawing your whole super fund tax-free and then making provisions in your will for how it should be dealt with upon your death. This makes it possible for you to pass funds to your independent family members tax-free.

An alternative option is to withdraw your super and then make non-concessional super contributions (up to the annual limit of $180,000) so that there will be a tax-free element to any superannuation death benefit.

 

To summarise:

  • When you die, your super fund doesn’t become part of your estate but is handled by the fund’s trustee. You must have a ‘binding nomination’ in place if you wish to decide what will happen to the fund upon your death
  • A binding nomination expires after three years so must be regularly updated
  • Death benefits may be paid to a dependant tax-free as a lump sum or income stream
  • Tax on death benefits paid to non-dependents as a lump sum applies at 17% (for taxed elements) or 32% (for untaxed elements)
  • If your child is listed as a beneficiary on your account you can pass on benefits and associated life insurance through a child-allocated pension
  • You should speak to a financial adviser about other ways to minimise tax if you don’t have any dependants

 

access super funds

Minimising tax when you access super funds

24 Aug, 2016

When can I access super funds?

You’ll need to check the specific rules of your super fund’s deed, but generally you’re allowed to access super funds:

  • when you retire after reaching your preservation age
  • when you turn 65
  • under the ‘transition to retirement‘ rules, if you continue to work

Your preservation age is not necessarily the same as your pension age. It’s the age, set by the government, at which you can access your super. Your preservation age will depend on when you were born; it used to be fixed at 55 but is now being incrementally raised to 60. If you were born after 1 July 1964, your preservation age will be 60.

If you leave work when you’re 60 or over, you can access your super as a lump sum or as an income stream, even if you begin another job.

Anyone who has been living in Australia as a temporary resident and then leaves may apply to have their Australian superannuation paid out to them.

 

Will I be taxed when I access super funds?

This will depend on whether you’ve already paid tax on the money in your super. Most people have a taxed super fund – meaning tax is applied on contributions and income at the time they are added to the fund.

If you have an untaxed fund, any income you receive from your super must be declared as assessable income on your tax return and taxed at your marginal rate.

With a taxed fund, any withdrawals you make when you’re aged 60 or over will be tax-free. Before this age, withdrawals may be subject to tax.

 

What if I need early access to my super funds?

While you will benefit from tax-free withdrawals if you wait until you turn 60, it is possible to access your super funds tax-free when you’re aged 55-59, subject to the ‘low rate cap’ amount. For the 2016-17 tax year this amount is set at $195,000 and any lump sum amounts exceeding this will be taxed at 17%.

There are limited circumstances in which you may be allowed to access your super before you retire or reach your preservation age. These include cases where you:

  • are in severe financial hardship
  • have sufficient compassionate grounds
  • have a terminal medical condition (certified that you are likely to die within two years)
  • have a permanent or temporary incapacity

Any such withdrawal prior to reaching preservation age will also be subject to any special restrictions attached to your super fund.

If you try to access super funds early without gaining proper approval, you may be imprisoned or subject to heavy penalties. You may see promoters offering ways to gain access to your funds before retirement, but these schemes are illegal.

 

To summarise:

  • You may access your superannuation funds when you retire after reaching your preservation age (an age set by the government, soon to be fixed at 60), when you reach 65, or under the ‘transition to retirement’ rules if you’re still working
  • If you’re aged 60 or over you super may be paid as a lump sum or an income stream, even if you start another job
  • Earlier access is possible; between ages 55 and 59 there is a ‘low rate cap’ of $195,000 on the amount that can be withdrawn tax-free. Amounts exceeding this will be subject to 17% tax
  • You may be able to access your funds before you reach 55 in certain circumstances, including in cases of terminal illness and severe hardship
  • Using any other route to access your super funds early is illegal and may result in harsh penalties or jail time

 

TtR pension

Accessing super funds before you retire with a TtR pension

22 Aug, 2016

Many people believe that you have to retire in order to be able to access your superannuation funds. This isn’t actually the case, as the ‘transition to retirement’ (TtR) rules allow you to receive regular payments from your super with a TtR pension while you continue to work.

So whether you just love your job and don’t want to give it up completely, or you’d like to cut down your hours but need some supplementary income, a TtR pension could work for you. 

 

When can I get a TtR pension?

If you reach your preservation age (previously 55 but now being increased to 60) but are still working, you can switch to a TtR pension which allows you to access up to 10% of your super’s funds each year tax-free. This must be paid as a non-commutable income stream rather than a lump sum.

The 10% limit is calculated based on the member’s superannuation balance at the beginning of the tax year.

You don’t necessarily have to reduce your working hours at this point; you may continue working full-time and supplement your salary with payments from your super, or you may reduce your hours and use your superannuation savings to maintain your level of income.

 

How are TtR pension payments taxed?

Tax on income from a TtR pension is applied in the same way as any other income stream. If you access your super funds after reaching your preservation age but before age 60, your normal marginal rate will apply to the taxable part of your income stream.  You will also be eligible for a 15% tax offset. Any regular payments from a taxed super fund are issued tax-free after you turn 60.

Before commencing a TtR pension, ensure your fund has enough resources to fund your full retirement. If your fund doesn’t generate earnings in excess of your pension payments, you may wish to supplement it with salary sacrifice contributions while you’re still working.

Salary sacrifice has the added benefit of saving you some extra tax, and, if structured properly, it may be possible to maintain the same level of income while giving your super balance a significant boost.

Due to the complexity of setting up and managing TtR arrangements, it’s advisable to seek expert financial advice to help determine what’s right for you.

 

To sum up:

  • Once you reach preservation age (currently being moved from 55 to 60) you may access some of your super funds regardless of whether you’re still working
  • The amount you may access on a transition to retirement (TtR) pension is capped at 10% of your super balance at the start of the financial year
  • The taxable part of this income will be taxed at your marginal rate, but once you reach 60 any income from your super is tax-free (providing it’s a taxed fund)
  • You don’t have to reduce your working hours when you move to a TtR pension, but you may choose to do so
  • Consider salary sacrificing some of your income to keep your super balance topped up ready for your full retirement
  • Setting up and maintaining a TtR pension is complex so you should seek financial advice beforehand

 

smsf borrowing

How to use SMSF borrowing to fund your super investments

19 Aug, 2016

If you’ve decided to build wealth through your a self-managed super fund, you might consider borrowing money to give your investments a boost. The tax concessions available through super makes SMSF borrowing a particularly appealing option, but it does come with added risks so should be considered carefully.

 

How can an SMSF borrow money?

Since September 2007, self-managed superannuation funds (SMSFs) have been allowed to borrow via instalment warrants. This allows an SMSF to pay for part of an asset upfront and borrow money to cover the remaining cost. While there is debt outstanding, the asset is held in trust but all benefits (dividends, franking credits, etc.) belong to the SMSF. Legal ownership of the asset may be acquired by the SMSF through the payment of instalments, although there is no obligation for the SMSF to do so.

If the instalment warrant is used to acquire a portfolio of shares, the dividends received will generally be used to pay down the loan. An SMSF may also purchase property using instalment warrants.

As an example, let’s say Margaret has built up $400,000 of cash in her SMSF. She uses an instalment warrant to borrow a further $200,000 for her super fund, meaning she can purchase a $600,000 property. She will make additional contributions to her fund and use the rental income to pay off the amount borrowed. Any interest charged is tax deductible for the fund.

 

Minimising tax on share investments

The tax benefits can be particularly good when you invest in shares via your super fund. If you borrow to purchase a share portfolio, interest payments will be deductible for the super fund and excess franking credits can be used to offset tax on other sources of income. Depending on when you eventually dispose of the portfolio, there may be no capital gains tax to pay at all.

 

SMSF borrowing restrictions

A purchase must be structured in a particular way for an SMSF to be allowed to borrow money. This used to bring added complications, but the banks are now getting used to the process so it is becoming more streamlined for the customer.

Borrowing within SMSFs is subject to special rules, including:

  • An SMSF may only borrow for the acquisition of an asset
  • The lender is limited in recourse to the asset itself and not any other asset of the fund
  • Legal title to the asset must be owned by a custodian trustee solely for the benefit of the SMSF
  • After a property has been acquired by an SMSF, any improvements required must be paid for with the fund’s available resources, not with borrowed funds

 

Considerations

You’ll probably end up paying a higher interest rate when you borrow within your super than you would for a normal home loan. Interest payments are tax deductible, but this extra cost still needs to be factored into your calculations on net return.

Although you may be offered a loan of up to 75% of the asset value (depending on the borrower’s restrictions), because of the risk associated with this kind of borrowing it’s advisable to limit SMSF borrowing to 50%.

It’s possible to purchase an off-the-plan apartment through your SMSF but you will need to have enough cash available to put down a deposit and pay stamp duty and any other up-front costs. Only once the unit is completed and strata titled can you obtain finance to complete the purchase. It’s best to seek professional advice in a situation like this.

 

To recap:

  • Self-managed superannuation funds (SMSFs) may borrow money to fund an investment via an instalment warrant
  • With an instalment warrant, the asset is held in trust but the fund retains the right to all benefits such as dividends and franking credits
  • Interest payments on any borrowed amounts are tax deductible within the SMSF
  • There are certain restrictions on SMSF borrowing; the loan must be used to purchase an asset, and in the case of an investment property, any improvements must be funded with available resources, not borrowed funds
  • Expect to pay higher interest rates on this kind of borrowing than you would on a home loan
  • Limit your borrowing to 50% of the asset value to protect yourself against market fluctuations

 

self-managed superannuation fund

Is a self-managed superannuation fund right for you?

17 Aug, 2016

What is a self-managed superannuation fund?

A self-managed superannuation fund (SMSF), as you might guess from the name, is a type of super fund that is managed by its own members. More and more people are choosing to manage their money in this way, with the number of SMSF members passing the 1 million mark in 2015. This gain in popularity is partly down to the attractive tax concessions offered by supers, and partly due to individuals becoming more knowledgeable about how to manage their own retirement savings. There were over 32,000 new SMSFs opened in the 2014-15 financial year.

Managing your own super fund requires time and expertise – including professionals you can turn to for advice. If you have these resources, you may benefit from taking control of your retirement funds and investments through an SMSF.

The ATO applies an annual levy of $259 for SMSFs, payable in advance. In addition to this, you’ll have to pay annual charges for your super fund, usually amounting to several thousand dollars.

These charges clearly need to be taken into consideration when deciding whether an SMSF is the right option for you. There is little value in dedicating a significant amount of your time to managing you investments, only to find a big chunk of the profits wiped out by admin fees. Generally speaking, the higher the balance of your super, the more worthwhile you will find an SMSF to be.

 

Benefits of having an SMSF

SMSF owners may benefit from a number of factors including:

  • freedom to invest your superannuation funds when and where you wish
  • tax benefits:
    • a maximum tax rate of 30% for contributions, or 15% for earnings in a complying fund
    • tax-free earnings in the pension phase (neither CGT nor income tax is applied)
  • economies of scale – up to four family members may combine their superannuation funds, creating additional earning potential compared to keeping them separate
  • ability to invest in direct share portfolios, with the resulting franking credits used to reduce the tax bill on other income sources
  • ability to invest in business real property
  • deductible life insurance premiums
  • ability to borrow money through the SMSF

 

Downsides of having an SMSF

Although they offer significant benefits for some, SMSFs don’t suit everyone. The following downsides should also be taken into account:

  • extensive administrative obligations, including an annual audit and detailed record-keeping and ATO reporting requirements
  • high annual charges – for administration, accounting, tax and audit on your SMSF you are looking at fees of $2,000 – $6,000 for an account of average size
  • compliance responsibility – as an SMSF trustee you must ensure the fund complies with its trust deed and superannuation laws
  • fund management, which must be carried out in the best interests of fund members while ensuring there is no overlap with their personal and business affairs (a super should be kept for the sole purpose of providing benefits in retirement)

If you fail to follow the laws and rules for your SMSF, it will lose its complying status and may be taxed at 45% as a penalty.

Be aware that super funds are technically not allowed to operate a business, so any share trading activity should be done separately as an investor unless you have extensive knowledge of the rules surrounding this.

 

To summarise:

  • You may choose to take control of the way your retirement fund is managed through a self-managed superannuation fund (SMSF)
  • Benefits of an SMSF include: more control, tax concessions and economies of scale where up to four family members combine their funds
  • There are also downsides, including high annual fees, increased responsibility/risk and greater demands on your time
  • Before opening an SMSF, do the sums to make sure the potential increase in income will cover the additional fees
  • Failure to comply with SMSF laws and rules could mean your fund has to pay tax at 45%

 

disability insurance

Do I need to take out disability insurance?

15 Aug, 2016

Just like life insurance, disability insurance offers financial protection by replacing earned income. In this case, the protection kicks in if you suffer an illness or injury that prevents you from working temporarily or even for the rest of your life.

 

Is disability insurance necessary?

If you’re single and don’t have a great amount of wealth, then you need disability insurance because you will have no other way of supporting yourself if you can’t work.

If you’re married, there are a few things to consider. If you lost your source of income, would your spouse’s salary be enough to support you both? Would your spouse definitely be able to continue working instead of looking after you? Would your savings be enough for you to live on for many years? If you can’t be certain of sufficient income from either your spouse’s salary or your savings, then you need disability insurance.

Experts say that disability insurance is one of the most important kinds of insurance, simply because you’re far more likely to suffer a financial loss due to disability than for almost any other reason.

Why, then, do so few people actually take out this form of cover? Perhaps because they believe that if the worst did happen and they were unable to work, they would get support from the state instead. Of course there is some level of state funding provided, but the level of cover is relatively low and the eligibility criteria are often very strict. If you wish to be able to live comfortably in the event of illness or disability, private disability insurance is essential.

 

How to find the right disability insurance for you

There are plenty of different options when it comes to choosing your cover and it’s certainly not cheap, so it pays to shop around and make sure you’re getting the best deal on a policy that suits your needs. Here are some things to consider:

  • Coverage: A good policy will pay at least 60-70% of your salary if you become disabled.
  • Definition of ”disability”: Some policies define “disabled” as being unable to perform any kind of work. Instead of this, look for one that will cover you if you’re unable to perform the duties of your current occupation.
  • Residual benefits: If your disability or illness means you have to reduce your normal working hours but you can continue working part-time, a policy with residual benefits will pay a pro-rata share of your benefits.
  • ‘Non-cancellable” vs. ”guaranteed renewable”: The last thing you want is for your insurer to cancel your policy after you make a claim. “Non-cancellable” means that as long as you keep up with payments, your insurer can’t cancel your policy or raise the premiums. “Guaranteed renewable” means that your policy can’t be cancelled, but your insurer may decide to raise your premium. A non-cancellable policy is therefore the best option, but these can be hard to come by.
  • Benefit duration: Look for a policy that will continue to pay benefits for as long as you are disabled, or at least up to the age you would normally retire. If you’re young, bear in mind that retirement age will probably change before it applies to you, and your policy should allow for this.
  • Elimination period: Your insurer will wait a set amount of time before it starts paying – this is called the elimination period and it can be anything from 60 to 180 days. The longer you make this, the lower your premiums will be, so work out the longest period possible that you could manage without any income, taking into account any sick pay or other benefits you may get from your employer.
  • Waiver of premium: This option means you won’t have to continue paying your premium while you’re disabled – definitely something you want to include.
  • Return of premium: This will see part of your premiums refunded if you don’t claim or you make only a small claim in 5-10 years. Adding this option can push the cost of your policy up by as much as 50%, so it’s probably not worth the gamble.
  • Cost of living inflation protection: Choosing this will increase your coverage by a certain percentage every year to allow for inflation. It’s a good idea to select this option, particularly if you’re relatively young at the start of your policy, since $100 will go a lot further now than it might in 20 or 30 years when you actually make a claim.
  • Option to purchase additional insurance: This provision will give you the option to purchase additional insurance coverage at a future date regardless of your health or other factors. If you expect your income to rise considerably over time then this is worth opting for, but it’s better for you to be able to choose your own levels rather than have a policy that makes adjustments automatically.

 

To recap:

  • Disability insurance ensures you have a source of income in the event that illness or disability prevents you from working
  • Unless you have a guaranteed source of income (from a spouse’s salary or savings) that would see you through many years of being unable to work, you should get some kind of disability cover
  • Don’t rely on state welfare, which generally provides lower levels of cover with tighter restrictions than a private policy
  • Fully consider and understand all the different options available to you, and decide which are worth paying for and which are not

 

Do I need life insurance

Do I need to get life insurance cover?

12 Aug, 2016

The purpose of life insurance cover is to protect the financial well-being of your dependants when you die. It essentially replaces the money you would have been earning so they are no worse off financially.

 

Is life insurance cover necessary?

The only question you need to consider when determining whether you need life insurance is: Does anyone depend upon your income for their financial well-being? If the answer is yes, then you need life insurance. Your unexpected death would be difficult enough for your dependants to deal with, without them having the added worry of how they’re going to survive financially.

 

How much life insurance cover should I get?

Different experts offer wildly varying advice when it comes to the amount of cover you need – it can be anything from three to twenty times your annual income.

You will need to take into account factors such as the number of people who rely on you financially, any debts you would have to pay off, and any ongoing expenses that would have to be paid from the insurance money.

Your insurance broker should be able to help you with your calculations, but life insurance calculation sites provide a good starting point for you to work from.

Remember that if your situation changes (e.g. if you have children), you may need to increase your level of cover.

Find out more about how to choose the right insurance policy in this article.

 

Term life insurance vs Cash value life insurance

Insurance companies may assign their own names to their different life insurance policies, but they all fall into two categories: term and cash value.

A term life insurance policy is what you would consider ‘normal’ insurance – you pay a premium and if you die within the period covered your dependants receive a payout.

A cash value life insurance policy gives you an insurance policy tied in with a savings or investment scheme (the idea being that if you don’t die within the coverage period, you still get a lump sum payment at the end of the term).

Generally, term insurance is a better option because the premiums are lower. If you want to invest some additional money, you’ll probably get a better rate of return by choosing an alternative investment product.

Some agents may try to sell you a cash value policy when you are young by telling you that you won’t be able to get a term policy when you’re older, but this simply isn’t true.

 

In short:

  • You should seriously consider taking out life insurance cover if a family member or anyone else is dependent on your income
  • The amount of cover needed varies from one situation to another, but online calculators can help you work out the level of cover suitable for you
  • Review your policy from time to time to make sure the level of cover is sufficient – especially if your situation changes
  • Term insurance provides standard insurance cover where as a cash value policy has a savings element as well
  • It’s usually best to opt for a term policy and invest additional money elsewhere

 

insurance tips

The five golden rules of buying insurance

10 Aug, 2016

Ok, it’s probably not your favourite topic, but insurance is inextricably linked to your finances so it’s an important area to think about.

Why do we buy insurance? To protect our money.

That’s what it really comes down to. We pay our premiums year in, year out, knowing that we may never get anything back in return except the peace of mind that if something did happen, we (or our families) would be covered financially.

Car insurance doesn’t do anything to protect your car – that’s your job as a driver – but it does protect your money if you have an expensive accident. Life insurance won’t help you live any longer or in better health, but it will protect your money and give your loved ones financial stability when you die.

Keeping this in mind, we can take a more objective look at insurance without the emotional aspect that is often used to sell it.

We’ll look in more depth at specific types of insurance in separate articles, but for now here are five golden rules that apply to most insurance purchases.

 

1. Keep it general

There are so many insurance products on the market, it would be easy to become paranoid and start insuring yourself against death in any possible way, and to buy cover for things you’d never even considered might happen.

This is really not the right way to go about it. A better use of your money is to load up on a few more general insurance policies that cover a broad range of circumstances so you don’t have to worry about how you might die or what could possibly happen to your property.

Here is a list of insurance categories which, as a general rule, are not worth the money:

  • Extended warranty and repair plans: Only a tiny percentage of purchases ever get repaired under extended warranties; you’ll rarely find that it was worth taking out the policy.
  • Home warranty plans: The problem with these is that they come with so many restrictions on the kinds of repair they’ll cover, there’s no guarantee you’ll be protected if major problems occur.
  • Mortgage insurance: This is really just a very expensive form of term life insurance, except the payout goes to your mortgage provider rather than your spouse. An additional problem is that the level of cover reduces as you pay off your mortgage while your premium remains the same.
  • Dental insurance: It’s just not usually worth the cost, and your health insurance policy may cover dental anyway. 
  • Credit life and credit disability insurance: The cost of these policies far outweighs the potential benefits. Get your cover from general life and disability policies instead.
  • Daily hospitalisation: Again, the premiums will more than likely add up to far more than you’ll get back in benefits.
  • Cancer and/or ICU insurance: Opt for medical insurance that covers a broad range of illnesses instead of trying to insure against each possibility individually.
  • Wedding insurance: Your venue should hold liability insurance which covers any injuries on the day, and your other policies may cover various aspects of the event. 
  • Tuition insurance: If your child has to pull out of their studies for some reason, most colleges and universities will be reasonable enough to refund at least part of the tuition fee or allow your child to complete the course at a later date.
  • Flight insurance: You’re very unlikely to die in a plane crash, and you should have general life insurance which will protect your loved ones however you might die.

 

2. Cut your premiums with a higher excess

With most insurance policies, you’ll have some degree of choice regarding your excess – the amount of money you must pay in the case of a claim. A lower excess will mean a higher premium while a high excess will reduce your premium. You can think of it a bit like a see-saw where if one end goes down, the other must go up.

It is, therefore, a case of finding the right balance between being able to afford your premium and having enough spare cash to pay the excess if you do need to claim.

While working out the right balance for you, bear in mind that insurance companies pay out an average of just 60 cents for every dollar collected. Put yourself in their shoes and think about what the chances are, really, of you falling ill or having an accident, or of something happening to your home or possessions.

The second thing to work out is if something did happen, how much money could you comfortably put towards it? You’ll likely save more in the long run by having a higher excess, but you don’t want to make it so high that you get into debt if you need to make a claim.

 

3. Don’t just go with any old insurance company

It’s not a good idea to select a company you’ve never heard of just because they’re offering you the best deal. Insurance companies can go under, and if this happens to yours you may be left with nothing.

To minimise your chances of a loss, you can check the company you’re interested in with a ratings agency.

It may also be worth checking consumer review websites to see what kind of experience other customers have had with the company.

 

4. Shop around

Just because you’ve been a loyal customer with one company for years and years, it doesn’t mean they’re giving you a good deal. In fact, they have a sneaky habit of increasing their prices in the hope either won’t mind or won’t have time to look elsewhere.

Whether you’re taking out a new policy or renewing an existing one, get quotes from at least three providers. You’ll be surprised at how much they can vary.

Comparison sites can be a quick and easy way to check prices with a large number of companies without having to enter your details over and over again.

 

5. Check the policy details carefully

Comparing insurance policies can be a bit of a minefield because there are so many variables, including coverage levels, excesses and exclusions. When comparing prices, you also need to check the details to make sure you’re comparing like for like. The reason for an attractively low premium may just be a sub-standard level of cover.

 

So, remember:

  • The purpose of an insurance policy is to protect your money; not anything else
  • Avoid being drawn in to buying policies that cover specific events. A few carefully selected general policies will provide the same cover without the extra premiums
  • Make your excess as high as you can afford – this will reduce your premium
  • Do some checks on the company you’re considering to make sure they’re in a good financial state
  • Shop around for your policies, but make sure you’re comparing like for like – this can be difficult with so many variables involved