Episode 95 | Insurance = Protection, Who will take care of your family when you can’t? | Craig Bigelow, Founder, True Pride

Insurance framework: how to set yourself up & not pay too much

We're talking about protection & insurance with Craig Bigelow, Founder & Head of Insurance Advice, True Pride. Are you underinsured or overinsured & are you paying more than you need? We talked:

• Australia’s insurance problem - how much should you be paying?

• Life insurance, income protection insurance, waiting periods & wasting cash.

• Framework: How to build an insurance plan you actually need.

• Why some insurance companies discriminate on mental health.

• Why you should undertake annual reviews of your insurance contract?

• What is a step premium vs. level premium & which is better?

• Trauma protection - who needs it now?

• Smokers & why they may be paying a 40% premium! 

GUEST WEBSITE:
Craig Bigelow - True Pride
Work with Veronica? info@gooddeeds.com.au
Work with Chris? hello@wealthful.com.au

EPISODE TRANSCRIPT: 

Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…

This episode was recorded on 11/9/19:

Veronica: You're listening to the elephant in the room property podcast where the big things and never get talked about actually get talked about. I'm Veronica Morgan real estate agent buyer's agent, cohost of Foxtel's Location, Location, Location Australia and author of a new book "Auction ready how to buy property even though you're scared shitless.

Chris: And I'm Chris Bates, financial planner, mortgage broker. And together we're going to uncover who's really making the decisions when you buy a property.

Veronica: Don't forget that you can access the transcript for this episode on the website as well as download our free Fool or forecaster report. Which experts can you trust to get it right, www.theelephantintheroom.com.au.

Chris: please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo the week coming up.

Chris: Before we get started, everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica: Okay, so we invest in property because we want to secure our financial future. We want to retire independently and not rely on welfare. We might want to give our kids a leg up too along the way. All bloody good reasons. Investing in property, community policy for our hopefully long and healthy life. But does our insurance policy need an insurance policy? I mean, what if we don't end up living a long and healthy life after all? What if we encounter hurdles before we achieve our goal of financial freedom? Are we planning for these? And if not, why not? In this episode, we're talking about protection with Craig Bigelow, Founder and Head of Insurance Advise at True Pride. Craig's goal is to help you tell your own insurance story, which allows you to have the minimum amount of insurance at all times. I'm not completely sure what he means by this, but it sounds compelling. Thank you very much for joining us, Craig. We're so glad you've achieved one of the big dreams you had growing up, which was,

Craig: uh, to talk about insurance barbecues. That's a dream of everyone, right?

Veronica: Yeah. Well, maybe after this podcast.

Chris: That's a great it's interesting to have these conversations because we've done what we ado episodes now it's always about, you know, invest, invest, invest. Um, and no one really wants to think about, well, what they can do to protect themselves cause it's not fun. It's not sexy. Why do you think we've got such a big under-insurance problem in the country and it's just somebody that's not going away?

Craig: I think there's, there's two problems. I think traditionally insurance is just one of those things that people don't want to think or talk about. And like wills, like wheels there, they fall into that basket of that nag until that nag becomes strong enough, you go and do something and be like, own the dentist. Right? Do you know you should do it? You should go and do this sort of things, but there's a hole in your tooth and then when you bite down on something and it hurts enough, you go and get it done. Yeah. So most of the people I talk to tell me it's been on their list for a long time. Um, so I think the under-insurance problem comes in for two reasons. One, people think that they've got enough already, so they've got some cover through this so far they might've looked at at once sort and go, yep. Or they've, they've looked at going and speaking to someone about it and they're a bit nervous because there's so much media attention on rogue advisors that are notoriously selling too much cover. So I think there's, it's two fold in that way.

Chris: Or even thoroughly, I mean, they've gone and seen adviser and they haven't had a great experience or they went for financial advice and they sold insurance, you know, and so that is sometimes like, Oh, I don't know, he to get insurance, I'm here to, you know, play my future. And then the advisors trying to sell them insurance. In terms of the, um, you know, you said that around there it's all a bit too difficult. They've, you know, what do you, is the way that people can simplify it in their mind on why they need insurance?

Craig: Well, I think it changes over time. So when you're pre-kids and pre debt and that sort of thing, I think you just need to be really selfish with your insurance. So most of the time you'll have life insurance, which is completely irrelevant. So if you're single or if you're in a couple and you don't have kids, if you died, it's gonna make someone else richer. So I think we look at things that aren't really relevant to our needs at the time. And the other thing with that is that when you're young, you don't want to spend money on something that you hope you never need. I can think of a million things I'd rather spend money on than insurance. So that's sort of a bit of a reluctance there. But to make it simple, when you have kids and when you have debt and that sort of thing, you do I guess, feel that sense of obligation to other people.

Craig: And that's traditionally where you'll sit down and try and do this properly. Um, I think the Barefoot Investor's been awesome at giving people a really good framework for, you know, a multiple of his salary as a starting point. Going back to your super fund and doing that sort of thing, which is an awesome start for people to look at and just work out at least the starting point for their insurance and start that conversation because he's built an immense amount of trust and people take action. So I think that's made it a bit easier for people. And I think the only thing to that is that you mentioned the minimum levels of cover. I just think that doesn't actually provide a framework for people to reduce the amount of insurance you have. So I know a lot of your listeners are property investors and building wealth.

Craig: That way when there's a gap you need to protect it. But that gap typically gets smaller as you get older. And if you're doing a multiple of salary as you get older, your salary's probably getting more. So instead of needing less, the multiple salary we'll say you need more. You talked about under insurance but over insurance, I think it's a real thing. And a lot of the people that I'm meeting now are in their forties or so and they've had insurance before and the premiums when they first started were down here or lower and they're massive and all that they can do is look at what's the price this year versus what it was last year and change it based on that. So you're just focusing on price alone.

Veronica: It's really difficult to get advice on insurance. I mean you go to an insurance company like for instance insuring building Yas, right? How much would I enjoy it for all we can advise you on it. Well if you can't and your the insurance company, who the hell can, yup. Um, and so then people are, you know, forced to go or what would it cost to rebuild the house, see if it got burned down or what else do I have to think about? There's very, very little guidance and that's not only insuring yourself, that's insuring your assets.

Chris: Sorry. Actually, if you try to get life insurance itself, because you'll call up, compare the market and I select or something or you see an advertisement, you go direct to the insurer because you don't want to say financial advisor. And then when you call that person, they're meant to give you general advice. They're not meant to give you financial advice. Right. And so if you start asking them questions about what's the right policy for me or they can't actually advise on that, can they Craig.

Craig: And then it all just gets too hard. But you know, you get frustrated, you've been on hold 15 minutes, you get there and you want someone to answer pretty basic questions. How much insurance should I have? How much will it cost? What happens if this happens? And then you just get frustrated. You hang up and it just reminds on your to do list. Yeah.

Craig: Uh, a lot of people think are private health insurance, they've got that. So they're like covered. What's, what's the big difference between where private health insurance stops and where you need other things like life insurance?

Craig: Well, I think the need, it's an interesting question because need is quite objective. Um, we all need certain things, but you really only needed, if you need to climb, that's the, the truth of it. So most people spend money on insurance that they will never need and that's actually a good thing. So the idea is to work out what money you're spending on the overall spend. So talk about your house insurance, your health insurance and your personal insurance and boat, car, pet, whatever it might be. But I'll just look at it as a pool of money and Scott addresses it perfectly. I keep referring back to him and he just said, well, I'm actually, I am an, I'm not a, I like a lot of the stuff. And I just think that there's some really good starting points there. But when you go further than that, and he says it as a general advice book. And I think with that is, is looking at the amount of money that you're spending overall and working out, which are the ones are most important for you. So, yeah,

Chris: and also when you get the best bang for buck, you know, sharing your iPhone, you spend $180 a year on doing that, but end of the day you lose your iPhone and you drop it. Um, yes, it's $1,000, but it's not changing, you know? But you could spend $190,000 on some good income protection or things like that and get much better bang for your buck. Right. Um, but it's funny how we protect our phone, but we won't protect our life.

Craig: Well, so to answer your question about the private health insurance thing, it's probably helpful to do a bit, right? So you've got Medicare so we can get our basic treatments sorted. Um, private health insurance will allow you to pick your doctor, your surgeon, your hospital, and probably get in a little bit quicker. But if you've ever used the private health system, there's the Medicare fee, the scheduled fee, what their doctor actually charges. So even with private health insurance, you're typically walking out with a bill. If you're going in. And if you extrapolate that over a longterm health incident, then that number can get pretty big.

Chris: Um, some, some of your biggest illnesses, one of the ones where that could get really big, I guess.

Craig: Yeah. Well maybe start at the beginning. So hip or knee replacement, if you're playing sport or doing that sort of thing when you're young or as you get older, as you start to fall apart, those are the sorts of things that vary drastically between even state by state, the doctor's charges changed dramatically. So they find that more affluent suburbs pay more. Um, so it does vary dramatically from there. So, and, and they're unregulated. Doctors can charge whatever they want. They're essentially a business. They're running a business. And I think that's fair enough. So if your premise is costing more than it would if you're in a, a lower value suburb, them, why shouldn't they charge more money? But I think when we get referred to one of those specialists, then we typically have a bit of a bond. You know, our GP says, go and talk to this person. You don't often go, no, there's no finder for specialists.

Craig: Well there is talk of having doctors publish what their face will be so that you actually know what's covered. So if you go to the worst case scenario, so you cancers, heart attack, stroke, those things that have a more dibilitative of and ongoing sort of nature where you're in there on a regular basis, those sums can add up pretty quickly and you kind of hope they do because it means that you're alive to have, to have the treatment, you know what I mean? So I think there's a positive in all of them, but the gap payment is really the one that's there. And then it's also what happens if that stops you from working as well. So I think there's the direct costs, which is kind of what private health tries to address. It's the direct cost of the treatment or the doctor or the surgeon. And then there's the inherent cost of what can't you do now that you could do before

Chris: The big opportunity costs is the loss of income I guess. Um, and that's obviously the biggest, but also private health insurance is not all equal, right? Like you know, you think you've got cover, but then when you actually go in and try to climb, you find out that you've got basic hospital cover, you haven't got the premium version and so they went Kavio hospital and then you've been a whole point in this exercise.

Veronica: So I'm definitely not, are you buying for the pregnancy pregnancy cover because you can't remove that without removing a whole bunch of other stuff that I do need or might need. Hopefully it won't need.

Chris: But I am paying for pregnancy cover too. Yeah. But I'm never going to climb on pregnancy cover. It's cause it's all kind of premiums going to pot. Right. And so you know, all the risks of, you know, let's say mental health, like you know, we're all paying for mental health but.

Veronica: Bundled. Yeah. Right. So it's like if you went and went to Fox Hill and you could just pick the only channels that you want. That's right. You got to pick their buckets.

Craig: and instead of you then trying to play God, like what is actually going to happen to. So if you tried to pick a sweet that was tailor-made, Oh my dad had heart attacks and my mum had breast cancer, but I'm a male, I'm not going to have that. You know what I mean? It's just unfortunately well unfortunately they're not designed to do that. And I think it's probably a good thing.

Veronica: I think you syhould be able to untick pregnancy though. I think you should, you as a man should be able to go. No, and I, me as a woman of a certain age should be able to go no.

Craig: but the hard part is, uh, you know, when you go through the, and you talk about people finding it difficult to get insurance, you go to an application, you finally make the decision to do it, and then you come back and there's exclusions, you know? And what really bothers me about insurance companies is that, let's say for whatever, the most common ones we get are mental health exclusions and your musculoskeletal. So you're back on neck. So you talk about private health insurance. We're trying try and use our extras and be the right sort of, we're getting value for money. But just because you went to the car row five times a year for maintenance, you'll now find you've got a back or neck exclusion on. Yeah. Yeah. So it's interesting. Sorry.

Veronica: Oh really? Elephant. Let's say you go through in your,

Chris: well I like it's we're jumping a few guns, but if you do get your logic with an insurance company, what are the outcomes that you could get? Because I think, I don't think people understand this as well and I think it's important to understand the outcome the insurance company can provide.

Craig: Well I tend to get a lot of people who have gone back to their super fund and they thought it was going to be easy. And then they've asked all of those questions and they've come up with a decision. And typically with a super fund, when you apply with them, it's either accept or decline.

Veronica: a life insurance life through super it right through.

Craig: So they don't have as much flexibility with the offers that they can make as what other policies can. So to tell you, explain a bit more what I mean there is that you get the policy or you don't [inaudible] they do have simple variations, but with other policies you might have an exclusion for your back and exclusion for mental health.

Craig: So what does it actually mean? What does that mean? So when you, when you say the options or outcomes, you're where they get the policy. So that's the right outcome. You get it. And they either load or exclude and exclusions mean that you cannot claim for the injury or illness that they've specified on the policy. Probably that is a, you paid the same amount. That's my frustration is that you don't get a discount because mental health, if you choose not to have mental health before you apply for the policy, you'll save. But if you get a decision that excludes that, they don't charge you any less. So it's super frustrating and it doesn't make sense to me. And this is why I spend a lot of my time upfront talking about those things it might sound really weird to have some guy you've never met asking you, Oh, tell me about your health. But the reason for that is that I want you to know what the outcome will be before you get it.

Veronica: It's funny because, um, I was told a friend of mine who's got a daughter going to psychologists and someone said to, Oh, if you go to the doctor and get them into health plan, you can actually get, I come, Oh, a lot of it back on Medicare. So she went along to the doctor and the doctor said, okay, I need to just explain to you the longterm ramifications of what could happen if you get, if you are absolutely under financial pressure, um, then you know, we can talk about doing it. But you've got to understand that basically it's only I think 10 sessions or whatever it was. And actually she's going to have these thing on her record for her life, which is going to impact things like this all for the sake of saving a few hundred bucks or $1000 bucks or whatever, you know? And it's actually daunting. I mean, so that doctor explained it and my friend decided not to go ahead. Um, but how many doctors don't explain it and then years later you go ahh.

Chris: it's a tough one because if the doctor didn't, uh, didn't provide the mental health plan and there was actually a mental health issue, um, he's could be liable for not, you know.

Craig: No, I think, I think the, are you saying that instead of having the subsidized costs of the treatment, it's not, don't get treatment, don't do mental health plan. But the issue with that is when they ask you all the questions, you've got a duty of disclosure to tell them what you've done. So whether you've got the mental health plan or not, the hard part is that people try and game-ify the system. And if you're asked the question, have you ever sought treatment or medication for any of these things? And you say no because you don't have a mental health plan. You could technically get done for nondisclosure because you haven't told them the truth.

Craig: It's not about what's on the record is what's, what's, what's, what is your if they, you know, if you have to claim for mental health in say 10 years time. And then I found out that you did actually go see a psychiatrist, which can be very easy to,

Craig: it's harder when it's not on Medicare cause they'd have, what they do is when you put it in an insurance claim, they write to Medicare and they get a history of your treatments and your visits and that sort of thing for a period of time before you submitted the application. And what they're trying to do there is cross reference for things that you knowingly didn't disclose. So it's not to say, Oh, I had a cold when I was, well not, not, not so well. It's just checking I think is the best way to cause, I mean there's a report and we can talk about it later, but nine out of 10 insurance claims get paid and that's ACIC did a report over three years from all channels of insurance. So, uh, the, the, what they're trying to do there is just cross-reference what you've said to see if there's anything glaringly different. So if you didn't know that you had a cold when you were 16, you forgot to put it in, that's not an issue. But if you had been speaking to the psychiatrist psychologist and that was in the late up and you'd been 57 times in the last three months, and if you forgot inverted commas to let them know that's a difference.

Veronica: Well, I think the other problem is, is that, um, what is mental health versus just normal getting help and guidance to live your best life. And so who then determines that?

Craig: So the, the issue too, I'm in PR, I can share a personal experience. I went to speak to my doctor when I, the business, I was making lists of my client's name into my head during my sleep and Carly said this probably isn't the right thing to be doing. And so I went to the doctor, I spoke to them, I got the mental health plan. And what shocked me was they actually have to put a diagnosis. This is what the doctor told me afterwards, they put a diagnosis on what is going on. So when I submitted my insurance, I had to update my income protection, went back and they're like, you've got adjustment disorder. And I'm like, Hmm, that's news to me.

Veronica: Um, so you've been diagnosed but not told. Yeah.

Craig: And so I still speak to, he calls himself a performance coach, but for me it's the same thing. I talk about what's going on in my life. It's one of the best things that I do. And the fact that I've got a mental health exclusion on my policy, I think I'm less likely to climb because I'm addressing the issues then what I would be had. I've continued making lists for the next 50 years.

Veronica: Well, no, isn't it that that, you know, to not acknowledge and deal with this shit basically means that it's going to get bigger and bigger and worse, and there's a bit of a disincentive in the system to deal with it.

Veronica: So the issue with it was, I know we're going on a totally different tangent here.

Chris: Well mental health is a huge issue and I think it is an issue that will have to evolve because at the moment the insurance companies treating it, like you've gone to the psychologist, you're getting an exclusion and then some people don't tell them, then it's then basically there's a huge, yeah,

Craig: and, and one of the biggest ones that frustrates me a lot, and they've come a long way. When I first started doing this about 14 years ago, if you had, have spoken about this before, decline, straight away, decline. Now you'll end up with an exclusion that can be reviewed. So what they're looking for, is there a pattern? So did I start a business and not sleep? Yes. Did you have a relationship breakdown? Yes. Perfectly normal things that would be normal for someone to want to speak about right. But the issue is that there's no blood tests for mental health and there's no limitations to what they're covering. And the biggest challenge I see here is for women. So I had a client of mine that was a doctor. Um, they spoke to someone as a kid, right? Mental health exclusion came on, knocks out postnatal depression.

Craig: So all of it's gone. It's not just like this thing, it not a minute element of mental health. It's all, and that's the difficulty I say with it and it's, it's a real problem. And Beyond Blue have done a lot here in terms of discrimination applications, insurance companies is discriminating on the basis of mental health. And I think that we'll see some evolution in this one too. But the issue is that so many claims come from mental health and the GFC and times of tough economic conditions lead to a spite claim. And because there's no blood tests, it's a little bit like turning up, I'm stressed, which leads to a client, you get made redundant, fired from your job and you're like, Oh, I'm out of options. Let's go put a claim in. You know what I mean? So it's, it's hard by size.

Veronica: It is fraught. Yeah.

Chris: So let's go on different tact now that in terms of, um, how do you approach that with clients? Because, you know, I guess there's a number of different insurances. Um, some people come in with a preconceived idea, I need this, I need that. But how do you of say, look, let's build a plan, like a structure around what insurance I actually need and what's your thought processes in which ones are more valuable than others?

Craig: So I th I think that notes are needs are the same. So everybody's needs are different, but I think the principles are the same. So I'm really big on the principles so that I mentioned having the minimum levels of cover at all time. I think you need a framework not only to get it set up, but also to come back and revisit it. And if you haven't done this, how often would you re-visit every year? Well, if something changes drastically in that year, I offer unlimited check-ins. So no matter when something goes wrong, I just want to inform you with the things that are important. And there's some that are significant and some that are insignificant, but if something happens, you're going to know better than I do. I don't have an alert to know that you're now earning $1 million when you're earning 50 grand when we met. You know what I mean? So

Chris: things do trigger that need to review. What would that be like a,

Craig: yeah, so significant changes for me. Uh, you've started a family, you've taken on more debt, you've sold a property and you've got less debt. You've, your kids have grown up, you know, so it doesn't necessarily triggered a review up. It's often a trigger to review down. Inheritance is a great idea. You know, your business has boomed and it's now worth significantly more than what it was before. So when it comes to enjoy yourself. Exactly. So for me, when you're looking at the principles of this, the importance comes out of the discussion. So I just believe in those principles for each of the different types of cover. And they can absolutely be self-insured. So if you look at the principles, I just want to be able to tell your story. So we are going to do this. I have our debt, we're going to do this, provide a replacement income for mum or dad to be super mom or dad for a period of time.

Craig: We need X amount of dollars. We net off your investment assets. So properties which will be a lot of the ones here, shares, Super, that sort of thing. And then provide some money for your final expenses, funeral and estate planning in the event of life insurance for trauma. I think you just need to have a principle that works.

Chris: So what is trauma though?

Craig: Um, so trauma insurance was invented. It's a bit unusual, so it's only been about 30 odd years ago and it was invented by a doctor. He was a heart surgeon, a guy called Dr Barnard over in South Africa. And so he actually, interesting guy performed the first open heart surgery with his brother, the heart transplant. Um, so he went on to have his brother though, not obvious brother, his brother. He did his own and but so what it was designed to do, he saw the impact on his patients of he could fix them physically, but he couldn't fix them financially.

Craig: So he gave an example of a young divorce, a woman that had come to see him, she lung cancer. He removed the cancer, treated her. But two years later she came in and he didn't go to her. So in South Africa I think doctors visit a lot more than come in. Yeah, she comes straight from work and now was riddled with cancer because he's like, what are you doing working? And she's like, I can't afford not to. So the idea of it is that trauma pays you an amount of money to do whatever it takes to get better. So just because a doctor can tell you you can go back to work doesn't mean you should. And the difference between the trauma and the income protection, the income protection, you have to have the inability in a doctor's opinion, not to work with a trauma. It's a choice.

Veronica: Wow, okay.

Chris: It's a light lift. For example, it was, I don't know what sort of illnesses that you could see that there's a bit of a disconnect, like heart attack for example. Technically you probably go back to work six weeks. I normally say, there you go. So six weeks, but do you really recover a heart attack after for six weeks? That's sometimes it might be a lot longer than that could it?

Craig: It can be longer or shorter. I've, I've had clients that haven't missed a day of work and had heart attack clients. Yes. So yeah, it can be a little bit of a golden ticket when it comes to trauma insurance for a heart attack. But for me, you just want to do whatever you need to do to make sure it doesn't happen again.

Veronica: Basically you're faced with death, you know, you've probably got a few other hurdles other than just the purely physical stuff that you really want to sort of think through and you might completely reevaluate your life.

Chris: Well that does happen with insurance. If you do claim on one thing, you know, if you then go and get other insurance elsewhere, um, you would get excluded for those things that you've been had to claim on, for example, cancer. But then if you went in and take the policy, you'd be excluded on cancer over this you have to pay full price, but if you get, yeah, yeah, yeah, yeah and then but then I guess it's the insurance company knows though that you're a risk now because if you have one illness you're more likely to have another ilness.

Veronica: Premiums go up with the existing insurance company

Craig: They don't change the premiums like they do with your professional indemnity or your public liability when you have a client, so they don't change the price of that. But what do you want to do is in the event that you're talking about Chris's is if you had a claim, you can inbuilt things that you can buy it back after a certain amount of time and there's some things that there's extras with all policies and a lot of the time they're sold to you, but unless the person can explain to you exactly why that's important, you just getting bells and whistles for the sake of bells and whistles.

Chris: That's a really good point. That's the thing why I think advice is so important because you know life and covers life cover, right? But the other insurances there, he just talked about a few bells and whistles where you, if you don't know, you will click yes rather than no and you've got to pay for it.

Veronicda: Well, especially if you're in that zone of like a finally the insurance has got to the top of my to do list. I'm finally doing it and I mean their mindset or I'm trying to make sure I'm covered in the event of all these staff and you go, Oh, have you thought about this and this and this. Nice. And of course you're going to be more likely to tick boxes. I'm sure they've done a whole, a bunch of studies on behavioral biases on that, you know? Yeah.

Craig: I just think that there's some that are and others that aren't, and I think it comes back to what you're trying to do. So with income protection, for example, claims indexation is a really important one. So what that means is that if you went on claim today, it can pay for a really long time. So some of these policies will pay you till you're 65 and let's say a monthly benefit. Today's $10,000 in 20 years time. If that $10,000 hasn't kept place, kept pace with what $10,000 buys today, you're not getting $10 grand. So that's an important one. Um, I believe that buyback on your trauma's really important. So if what that means is if you have a claim for cancer, if you survive for longer than 12 months, you can buy back the policy and have it back in force without the claim that you just had.

Craig: And it can be quite specific. So it can be breast cancer, prostate cancer, whatever it might be. But as Chris mentioned, if you went to another insurance policy, you wouldn't be out to get the cover again. If you've had chemo or radiotherapy or radiation, they might charge you more to have the policy again. So there's some that are really important and everybody that I've had claim on trauma wants more. You know what I mean? They've just seen the proof it works. And not only has it worked, but you are now. It's real for you. So a lot of people ski you and to get an insurance or your or your car, why don't you show your biggest asset and scare doesn't work until it happens to you. And it's either close enough that it matters. So your friends, your family, and it's, Oh this is real.

Craig: Or you is probably the most real it can get.

Chris: Yeah, there's no totally that trauma there. So what are the, the illnesses that it does cover and what it doesn't cover? Cause I think people think it covers everything, but it doesn't.

Craig: So there's, there's roughly 40 odd conditions that are covered and we've got an hour. So I've rattled them all off. But the major three heart attack, cancer and stroke. So they account for over three quarters of the claims that people have. But it covers everything through to adult lynching and diabetes, coma, burns, you name it, it's sort of in there. But you've gotta be careful what the definition of each of those conditions are with each provider. So they do vary and some are better than others. So, um, it's normally a clark level score for cancer. So how many layers of skin it's gone into and the more severe it is, the more of a payment you get.

Craig: So if you get a melanoma, you can sometimes get a payment, but it's only a partial compared to having a stage four cancer for example. So,

Chris: And even within the same insurer, there's sometimes different trauma policies isn't there?

Craig: Yeah, spot on. So you can have variations on any of these sort of ones with extras, without extras, those sorts of things too. And look, I think a lot of people come to me without any cover. So getting some is a good step. I find it's very difficult to go to absolute perfect case. And when I'm talking about insurance, I talk about the rolls Royce level of cover is where we start. Right? And I don't know anyone who drives a rolls Royce. I don't know about, maybe you guys don't,

New Speaker: but I definitely don't. So say that if I could afford to on the record I wouldn't.

Craig: but I just sort of say that we need to try and get that back to a VW. So just being environmentally conscious one, maybe not a good run anymore. But, um, I guess for me it's just trying to give up some of the bells and whistles to, to protect most things and not all, but be aware of what you do and don't have

Veronica: It's like anything though ...no that final 5% the customers or proportionately to everything else and the 95%.

Craig: But we can get so bogged down you go and talk to someone. I could talk for four hours about the ins and outs of a policy, you know what I mean? You could, but ultimately I think what the best thing I can do is help people get to a point that they're comfortable with the decision they've made and they're better than they were.

Veronica: Yeah, for sure.

Chris: And so if you only had limited money, what would be, where would you go? Um, in terms of obviously the life insurance, you must have that if you've got kids, because it's a kind of strong scenario. You're leaving a partner with kids, you know, they go from two incomes to potentially no income because now you're a sole parent and that in life cover, you know, in my view.

Veronica: And also so actually traumatized. Like you know the grief, you know exactly. You go back to work over here, you have the same desire. A woman I know who's, whose husband died very suddenly, very unexpectedly and she ended up having eight months of work, you know, it was just so catastrophic. So yeah, it's knocks the wind out of your sail, and to feet out from under you all those things.

Chris: So let's say you don't die there, but you're actually, yeah. You're worried about protecting yourself. If you get ill often like that, where would be your go to first? What would be the one you should, should get the most?

Craig: Well, I think the heart, I look at it. What's the hardest to replace with money? Right. So life insurance is tough because it's a big number. Typically it's going to be the biggest actual number that you need to insure. The next one, I look at income protection, but if you've got investment properties that are paying you income, how much money do you earn if you're not at work? That's the sort of thing that I look at there. And if your income from not workings and are enough for you to live off, that's not a problem for you. Right? So don't do that. But for most people, that's the hardest gap to close. So how do you get to the point that you're getting enough money from somewhere that doesn't require to be at work? So I think if you're the main breadwinner, and I, I normally premise it with that as if you're the main breadwinner, then income protection is important.

Craig: If you can afford to run your household on one income while someone's off on maternity leave, paternity leave, then you don't need to insure it. So there's better ways, ways to spend your money. So I think that's the best advice I can. It's sort of run through the scenarios. Honestly, it's, it's the printer. That's where I love the principle approach is you can talk through it and then you can also repeat it. We're doing this because of these reasons and that way, look, I help people, but you don't have to be indebted to me, you know, just because we've helped you in the start. If I don't do what I say that I'm going to do, I'm going go somewhere else. Don't use me at all. Or do it yourself. And there are options for doing that.

Veronica: Well done it myself only because I didn't know people like you existed. That was my hitting because as I said, you've got lots of questions but you don't know where to go to get the answers and the actual insurance companies can't answer your questions anyway. And it's like, well, I don't know. I do the best I think I can work out.

Chris: Um, yeah, I think a lot of the things you'd go to an advisor and it's not their specialty. Right? And so they, you know, unfortunately industry is getting a bit more, um, less owned by banks and institution and less, more independent. And so if you go to an advisor, at least probably they're going to research the market and a lot more than in the past if you walked into CBA. But you know, I still think, um, you know, it's got a long way to go in terms of, you know, um, the commission element because a lot of people think that they go to see a financial advisor, um, and they're just going to try to sell me as much insurance and there's not much trust there. Do you think that actually happens where people are so worried about the advisor making lots of money that they ended up not going to an advisor?

Craig: I actually think it's a warranted concern to be honest. I see people who have come to me with policies that are crazy. You know what I mean though? They are, in my opinion, they're, they're not, they're not right. They're not how they should be. And they're very difficult to justify. So when you're talking to someone, you place a lot of faith in them. And I think that if they can't articulate why you've done what you've done, then it's very difficult to argue that that's the right advice. So the biggest one I see there is a waiting period on your income protection. So what that means is how long you're off work before you start to get paid. The 30 day wait is twice as expensive as a 90 day wait. So if I meet someone and they've got half a million dollars in assets and cash and that sort of thing, and you've got a 30 day wait, you're wasting cash, right? You're really wasting cash because the idea of income protection isn't to stop and provide backup. If you can't work for eight weeks as you broke your leg, it's really to help you if you can never work again. So I do get frustrated when I see that stuff and yes.

Veronica: well it's, it's interesting because they're getting better commissions.

Craig: Oh well I do question that. You know what I mean? Like to answer your question, like you have to ask the question whether or not there's a conflict there between the why people are paid and not paid and commissions are hard run. We take commission on insurance, we get paid that way. Um, and that the reason for that is that I don't give advice that's not right for people and I'm happy to walk away, you know, like if I can't justify what I've done, and I can't be honest with you about the fact I get paid, I do a lot of stuff for free, a huge amount of stuff for free and the research really doesn't lie. So when I'm working out how much you need, I'll quote it with your super fund that you've already got. I'll quote it with the market and then I put them next to each other. This is how much it costs. This is the quality of the product. And sometimes I lose. Um, and we had one last week that the guy was a smoker and he was with the, with BT, I think it was. And they don't discriminate between smokers and nonsmokers. So his premiums were half as good as what I could do in the market. So I told him go back to Beatty, adjust the cover levels to what they were.

Veronica: That's so awkward isn't it? But it's, it's great behalf. I'm surprised.

Craig: Well cause they've got so many members they can pull them all together and spread the risk across the book. As opposed it's a bit like having multiple investment properties. You both pay a little bit more for the privilege.

Chris: Oh yeah. And I mean I think the, the smoker thing is a big issue because in your experience Craig, how does it work with smokers and how much does it affect the cost?

Craig: A smoker in the eyes of an insurance company is anyone who's had a cigarette or similar in the past 12 months, one cigarette. That's, that's it. You can get some exemptions. Like, you know, you might celebrate the birth of your child and have a wedding of the head and smoke a Cuban. Know what I mean? Very apt that um, you can have certain exemptions for that when you, you know, it's a one off sort of thing. Um, so a nonsmoker is anyone who hasn't touched in the last 12 months. If you're a social smoker, I only smoke when I drink. It's still classed as a smoker for premium rates. And what that does is it essentially adds about 40 to 50% extra on your cost,

Veronica: you know, years ago, long, long, long time. Since I last have a cigarette, I remember I was at that point where I was wanting to get some insurance and you know, I looked at that box and I went, I'm not even gonna apply until I've actually given up. And that was my incentive to actually give up so that I could apply for insurance

Craig: for the, the other thing is that if you do take on the cover as a smoker and you stop smoking, you can go back to the company and say, um, you make a stat deck or a statutory declaration and say I'm a nose non-smoker anymore and they'll change your premiums. And I always say it sounds silly, but it doesn't matter what you do from then on, it's point of application. So if you're applies a nonsmoker and then decide that, well yeah, good A's and just become a 20 pack a day smoker, your premiums don't change after that fast. So your insurance is only done at point of application. So it doesn't factor in what you're doing going forward.

Veronica: Don't you have to declare?

Craig: You only have to at the point of he application so you don't have to go back to them. So insurance is one of those things. It's that you only need to go back and tell them things if you want to make it better. So, so a lot of.

Chris: that good thing it should be like that because if I'm going to an insurance conversation, show me today, right. And I go, tell me everything that's happened in your past. And that's what they do. You know? And they, so they factor all that into whether they want to make an, you know, take out the policy. They, they're taking the risk to. They're saying, look, we actually want to take you on our books. There's nothing in your past that we're too concerned about. We're going to give it to you at standard rates or you know, you have had some real issues with the back. We have had some real issues. You might be had, you know, some health issues with the heart. We will cover you for everything besides your back in your heart because it's just too risky for us to cover that. But after that date, like if I start getting, you know, Back pain, um, you know, chest infection or, you know,

Veronica: But that is different being doing something that it was going to impact on your health.

Craig: Well it's, there's a lot of things there. It's like saying you can't go out in the sun because of skin cancer, so you have to stay in doors. You've got insurance now you must slip, slop, slap. And if you don't slip, slop, slap, you are going to pay more. But there are, I guess the way that insurance companies are moving now and you say more and more, these are rewards programs if you're living a healthy life. So, um, one of the big ones, AIA's done a Vitality Program, it's probably the best one. Um, and they're encouraging people to participate and will show, demonstrate good behavior. So if you take 10,000 steps, if you go to the gym, we'll give you a boost juice voucher or discount gym memberships and discount flights. And it's probably been the most successful one over in South Africa. It's so widely adopted that it's at supermarkets now there's a Vitality rate in a normal right. And if you saw the Ashes recently, Vitality is a major sponsor of the cricket. So that's probably moved along the way. And um, the others are doing a discount if you are a BMI's in a certain range, you're a nonsmoker, that sort of thing too. So they're probably encouraging better behavior rather than punishing. It's more carrot than stick, if you like.

Veronica: Okay, interesting.

Chris: So the elephant in the room is 100% for you.

Veronica: The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks but also the ways in which you can avoid your elephant making the decisions.

Chris: But what we would love for you to do is just to share this episode and share other episodes with people around you that are going through the property process.

Veronica: Give us a review on iTunes. Five-star please will be very appreciated because this is about making sure that we all benefit from the wonderful information that our guests have been sharing with us.

Chris: Yeah, I agree with Craig. When clients do come in, I look their insurance um, it's quite common at all. You know, I get a bit frustrated because I will say that, you know, someone's either over insured in something that, you know, I might be, why too much trauma insurance and they havent got a protection. Well they've got way too much life cover and it's actually with the really expensive provider because they've got their super there. Um, and that's quite frustrating. But the biggest thing that frustrates me is something called step versus level premiums. Can you just explain, um, cause I don't, it's a vast majority. Advisors recommend step premiums and don't take the time to educate on level premiums and explain exactly what it is and why it's so important.

Craig: Well to bring it back to the property example, I think most people listening will be interested in that elements a bit, lot of fixed and a variable rate on your mortgage. The level premiums give you a bit more certainty about what the price will be. Whereas a stepped premium is a bit like the variable rate except there's no variation down. So the steps, premiums start out cheaper but get a lot more expensive as you get older. So if you think about a two access, there's costs and age as a younger it's cheaper and as you get older and more likely to claim it becomes more expensive. And not linear though. No, it's a hobby. It's a hockey stick at the end and it hockey sticks at the time when you're most likely to claim. So what the insurance companies and they all policies may not have been invented by insurance companies, but they're certainly run by them.

Craig: And they know how to make money. So they try and price you out at a point when you need it most. And so what most people do.

Veronica: is that like deliberate,

Craig: well it's based on the actual, uh, the actuaries actuaries look at the stats around claims and they work out pricing accordingly. So the risky or you get the more they charge for the same level of cover. So what a lot of people do is they get their insurance done at the start. You know, they've just had kids and then taken all that down the right thing, but then they get older and their prices are now have gone up. They've gone into that area where it's a bit more risky and they're looking at it and they're like, we just can't afford to keep this anymore. Whereas if someone had had at least had the conversation about how level premium works, but there's super, there's great discrepancies between level premiums as well.

Craig: So a lot of the companies, let's say that your premiums in, they index by about 5%. You one premiums are a hundred bucks. You two, one Oh five. Do you think most companies insure or index the one Oh five or the a hundred most will index the index premium. So compound interest. Well it kind of defeats the purpose of the level premiums. So there's some companies that will index the original premium amount and they're called true level premiums. And you'll notice I've got a client who's in his fifties now that took out the policy, obviously went to an amazing advisor, had a cover with a provider that offered the true level premiums and his income protection costs are less than mine. So it's crazy to sort of say those things.

Veronica: But the stupid thing with income protection, it keeps going up every year right. And yet the older you get, less amount of time they have to pay you.

Chris: That is true. Very true. It's, it's a cost to benefit point in time where um, if you didn't take out income protection and say in your forties or thirties, um, and now you're in your early fifties to mid fifties income protection as it gets exponential and you're getting through your 50, it's starting to get very expensive. And you're right. If your claim period's going cause it claims you to 65 it's getting shorter and there is a point in time when your fifties I think where the cost of benefit, you do have to gamble on it. Secondly, you should have more assets in your 50s and you do in your forties and thirties so it's income protection and life covers. The other thing you know it's, you should potentially not need as much cover, but let's say life didn't go to plan and you, you know, got a divorce your, you got health issues, you didn't work in your forties.

Chris: Um, if you haven't got much money in the bank, well in your 50s you need that income protection because you're the ones the most vulnerable and your cost is going up every year and you can't afford to not have it. And so I think that the problem with the step premiums is that ideally you don't need it in your life because you've done well and you've got money. But if you do need it, if you'd go down the step path, you're going to have to, you're not going to be covered in your 50s because you won't be able to afford it. The only option you really got is taking out level cover in your thirties but I just don't think, unfortunately people just don't know. They'll go see a financial advisor in their thirties and the advisor just won't explain level premiums to them.

Veronica: I've been to a number of advisors and different advisors over the years, you know, and I've had terrible explanation, this sort of stuff, but something I learned the other day, which you can tell us a bit more about, was that say got life insurance in your super and your beneficiary is your child. That the treatment of the benefit is different if that child is up to the age of 18 versus over the age of 18 right now, this is a big, big thing. So certainly for me, because my daughter is my beneficiary and hopefully it never happens. You know, one day it will I guess this, but um, hopefully it definitely doesn't happen before she's 18. But I'm going to make a change to my life insurance policy as she turns 18 and I'm sure you know exactly why I'm going to do that.

Craig: Yeah, explain that. I guess 18 is not necessarily, if they're financially dependent on you, it's, it's still under the same superannuation rules. So if they're a valid nomination for superannuation argument sake, if you'd be financially dependent on your stuff, so you might buy yourself a bit more time in that sense as well. Um, so what are the, the rules are for insurance owned through Super, the same as your superannuation benefits. So there's valid and invalid nominations. So you've hit on that spot on. So the idea that, well, the other thing you could do is you could update your beneficiary. I'm assuming you've got a Will, you can update your beneficiary so that your money gets paid into your estate. So a lot of people don't know that your superannuation and your estate assets are separate. So if you have them talking to each other, then you've essentially got this beautiful bit of paper that might set up testamentary trusts, beautiful tax effective structures that isn't being used.

Veronica: So I should do that. You can actually set up your superannuation beneficiary to be your site as opposed. And then then how does the tax,

Craig: the same rules apply. It's a valid nomination and then it depends who receives the benefits from the trust. So you can set it up so that the distributions assignments, what would be the reasons that you set it up in the first place? Because your assets are over a certain amount so they can use all the tax effective structures of the, of the trust to distribute the Bennett.

Veronica: Yeah. And please explain exactly what happens with that tax. So you know why that matters.

Craig: So you can lose a percentage of the balance to a non-valid nomination. So you'll lose up to 30% I think so.

Veronica: Basically it means that, sorry, say God forbid I die. My daughter is a dependent. Um, so no, no, no biggie. She gets 100% of the benefit. But if she's 25 finished university, no longer dependent on me and I don't change that, she has to pay 30% tax on it, on the benefit.

Craig: So $1 million will become $700,000.

Veronica: So that's really critical and as an absolute mindblower for me when I heard that.

Chris: Yeah, I mean the real risk there is, you know, there will be people who um, you know, are the last couple of, they're single for example, or the partners already passed away and they've got their money in super and they've got life cover in super and then they've got no dependents. And if you haven't got any dependents, um, and that means kids over the age of 18, 21, you potentially could be liable for a form of almost inheritance tax basically. And so you've gotta be careful of that. But that's not, if you have got a partner, that's not a problem. If you have got a child under 18, that's not a problem, but it can change. You get divorced, that could potentially get rid of that. You know what I mean? Those things happen.

Veronica: So it is something you want to share about your review. So there's some of the things that change.

Craig: Yeah, I do think it's worth talking about because I guess essentially it's, it's money for F if you look at it, it's money that wasn't expected, but when the number's less than what you thought it would be, and it's something that's an administratively tax, if you can.

New Speaker: Why pay tax if you change it, like in that, I think there's a real problem with the system, the tax rules, if it's that obvious and it's that easy to get around.

Craig: Well the, the tax rules don't change because of the age. They actually just become not dependent on you anymore, so they don't satisfy the condition. So it's not that they've voided the, it's not a tree,

Veronica: No but, you can get around it and you would make decisions like that. You could withdraw if he knew you were gonna die, could withdraw all your money out of your super, for instance, and get it out of super. And that way, avoid your beneficiaries paying the tax. Right.

Craig: You can, if they, they used to be a joke that advisors would have the withdrawal forms sitting in the hospital drawer, you know, sign wants to send through. It does work that way. Uh, I just, I, I just think that there are rules that are there and they're there for a purpose. Right? So it's, it's designed to do and you can set it up so that you can pay for the, you could pay for the premiums directly as opposed to through Super. You know what I mean? Like that would change. Yeah.

Veronica: But it is advised a lot of, I was advised to take my because originally my life insurance was paid outside of super pros advice to change.

Craig: You've done the right thing from 99% of people out of a hundred. It makes sense now that through your super and you just then need to address, I think there's one thing to get the money, ensure the benefit that it's then getting it in the right hands with as little tax as possible.

Chris: So super, um, a lot of people think that they've got enough cover through super. But what, you know, what are the problems with just taking that kind of bit of ignorance is bliss sort of model where I've got cover in Super. I don't need to look at this thing. What's the problem.

Veronica: Is that like with travel insurance on your MasterCard?

Veronica: Yes. Was same, same sort of, you know, reality I guess in this travel insurance.

Craig: Yeah. I think life insurance is pretty universal, right? So life insurance is life insurance pretty much. There's some subtle differences between one policy and the next, but if you've got $1 million worth of life insurance with your super fund versus $1 million that you went out and paid.

New Speaker: someone to do for you, they're pretty, they're pretty similar. Right? Um, the taper, they gets a little bit different. There's some different definitions on their own, any occupation, that sort of thing too. But they start to become a little bit more, there's some variation there. Yeah.

Chris: And what is TPD? They like, what, what, why would I need it? I guess.

Chris: Um, TPD is the lowest percentage chance of climb out of all the covers that are around. So I've had four claims for TPD for the clients I've looked after in 14 years. Whereas we do multiple trauma policies, the multiple income protections a year and I've done lots of life insurance claims. Um, probably uh, but we're all going to die, probably unfairly skewed. I did a pro bono work through the cancer council, so I'd meet with people who had been put into a position that they got this diagnosis. They didn't know what to do and I met with them and help them access the benefits from their super fund. So I did and it was awesome for me cause I was just starting out. And the hardest part for an insurance advisor is having people that claim. It staggers me that a lot of people that have had been advising or advising insurance haven't helped someone with a claim. Now the percentages on it are about 70% of people with insurance go directly to the insurer when they climb and someone's getting paid all this money over the years and they don't help them. If you prove that it works. So

Chris: it's a key point in time, you should be going to advise it because you know, there are times, I'm sure with your claims where if they went directly to the insurer or they went through, you , you know, technically you shouldn't get a better result. But at can you please, can you get an example of where you definitely think that you've got a client a better result and if they just went direct,

Craig: well, I'll tell you one of the pro cases I did, it was a lady who had been diagnosed with breast cancer. Her kids were going through HSA. Um, her husband had just gone bankrupt and she was working at Australia Post up in Sydney. And, uh, they came in and met with me and I found she had $80 something dollars left in her super fund through work. Um, if she had a been told that she wasn't working at the post office anymore, she needed a minimum of $1,500 in that account to keep it active and keep her insurances active. I rang the post office and I asked the guy not to take her off the books, so we maintain that I went to put money into her account personally, which is completely illegal and almost got in massive trouble from my licensee at the time for doing it. Uh, but essentially I help them with the paperwork.

Craig: We submitted all the claims, it got declined the first time, got declined for a terminal illness benefit being that she was given less than a certain period to live. And it was because the doctor had put on the form, is it not likely that the client has less than two years to live and he just Ticked the wrong box. And so we submitted, the client, came back and was declined. I've got all the forms back and I looked at it and it was wrong. So I called the doctor and I said, did you know that you put this on the form me? Oh no, I made a mistake. We corrected the form to what it was actually meant to say. re-subdmitted the climb and I've got to deliver a $350,000 check to the client that I'd also insured wasn't going to be picked up in the bankruptcy claims that her husband was having to.

Craig: So it helped them out massively in the card that I got. After that, she said she couldn't call me because she couldn't talk to me without crying. And it was, this was one of the first claims that I'd ever done and it was amazing and really for me, that's when I started to love insurance, when it was like the difference that it makes at the right time. Yeah. I still have conversations with people think I'm a shank and I'm trying to sell them everything under the world and you can think of what you want, but at the end of the day, other than that, so.

Veronica: I can see it in your face. I mean I can see how rewarding that whole thing was. I've got a client who, I'm guessing she's maybe an early forties and she had a stroke and and having the appropriate insurance and we ended up buying an apartment for her outright. Um, and so she, because otherwise she was basically forced to move back out of Sydney to sort of a rural area where her 70 odd year old mother was living and she was living back there being cared for her mother because she can't actually go back to full time work. Um, and that is the complete benefit. She's living an independent life now. She's doing it, I think a bit of sort of part time work, but she's living independently now because of her insurance. You know,

Chris: that's really the reality. If you haven't got cover and something goes wrong, whether it's a short term illness or a longterm illness, there's usually an impact on your family. Um, you know, your partner has to stop working. Your partner has to work more, you have to live with your parents. Um, they have to stop work, have to take

Chris: care of you. You need care. There's all these other things where you didn't have cover and all the old people or the love now have all the impact from it. So you're really not doing, I think you're not really doing insurance for yourself. You're doing it for others. You have to pay for it, but it's not you that really gets the benefit. Yes, she might, but it's all the people around you that get there.

Veronica: Although, I'll tell you what I mean, if you in that situation, for instance, how much better to live independently still. That's right. He's still for yourself as well. But yeah, I agree that it's for everyone.

Craig: Say those, and I'm sure you've seen them as well. When something tragic happens at a sporting club or something like that. You say the go fund me pages? Yeah. I just think that you don't want to gamble on the generosity of your friends. You know what I mean? Line it kind of, in some ways it frustrates me when I say those sort of things because I'm like, you really could have fixed this for quite a small amount of money and you wouldn't have to go. But obviously you sympathetic and you put your 50 bucks in or whatever it is, but it really doesn't help longterm, it fixes a quick problem. And to come back to your point on the claims element of it, it's just nice to have someone that's not emotionally invested at the time. So you talk about your client who had the stroke, you're talking about those people that have all these other things going on. I don't look, I care and I care about the person that it's happening to, but it's not happening to me. So I'm not emotionally invested and I know who to call. So I can call one person where they might have to call five. And so if it gets to the point where the decision's not right, I can take it up a level or upper level until it gets to the point. And you can just, I can push harder because you know where to push.

Chris: Yeah. And end of the day that insurance providers, if you have written a lot of insurance, you've got a relationship with the insurance provider. They do want to keep you because you've supported their business. They want to support you as an advisor, um, to make sure that they deliver on what they're promised to your clients. Because end of the day, you know, Craig's recommended a client and let's say it's one path. If one path don't pay out to his clients, is Craig probably going to recommend one path to his other clients, no chance. And so the insurance company is more likely to want to support the advisors. I think another issue where I think advisors can definitely add a lot of value, which technically they shouldn't be able to, um, but they can, is around assessment of applications, you know, um, Craig, I mean, how does it work when you lodge an application and the insurance company has some questions regarding their history, how do you help there to make sure the client gets the best outcome?

Craig: I think it's a little bit, it like to submmitting a alone. So when a loan goes into a bank, get to say what's written on the document. So there's no context to the fact that you had six months off work. And so they look at that as a gap in income and they go, your loan doesn't fit our criteria. Whereas if you provided some context, and it was just, I took six months off because I'd sold a business and I've got the, you know, it makes it a bit more of a story that the bank can assess the loan like I should on its merit. So I guess the way that I help is provide some context to the answers. And I don't just submit it as something that is on there, black and white, which automatically sets it off onto a box with a decline or exclusion or a loading.

Craig: I just believe that I will, I call it base mode. I argue with insurance companies more than anyone in the world. I reckon I spend so much time on the phone and I always say to the people when I'm talking to them up front is that my job is to sit on your side against the insurance company. We'll put it in and they're going to come back with all these decisions. These are the likely decisions, but if you don't like the outcome, don't do it, you know, and walk away. And what that sometimes means, and I had one recently, a client of mine who was in the Bali bombings back in 2001 he had sleeping tablets for two months when he got back, whatever, however many years that is ago now, 18 years. Got a mental health exclusion on his policy with one provider and I pushed as hard as I could with that company. I took it to state manager, national manager, head of underwriting and they'd made a decision and it was the wrong decision, which they admitted but they couldn't go back on that decision. So then I go back to the rest of the market, tell them the story and we managed to place it somewhere else. The same way you would with a bank if you get declined because it doesn't fit their box, you take it somewhere else. So

Chris: isn't she say right at the market? I think it's, you know, it's, it is very true where, um, you know, in my experience where, um, we've got the clients much better outcomes with the insurer than if they logged that application themselves because we've had conversations with the underwriter direct, not through someone else, the actual person assessing the application we talk to. And especially if you've got market knowledge, you know, that other insurance providers would cover that client. So you say, look, if we don't, if you won't cover us, we will go to, you know, towel, we will go to AIA. Can you tell us a bit more example of what's happening in the insurance market? Because I think a lot of people just think they know they can pick a provider and it'll be fine forever, but the last five years have kind of proven that that's not really okay. You've got to pick more of a solid provider.

Craig: Yeah, I think there's, there's some new entrants, so you'll say a couple of new entrants that are coming in and they're trying to take away a few of the frustrations of the industry. So the industry got some typical legacy books or like a lot of policies that they've had in place for a long period of time, which comes with its own problems. So these newer market people that are coming into the market are trying to speed up the time that it takes. And there's some ridiculous times that, you know, if you submit your application takes 73 years for a doctor to get a report back. All these sort of things that happen. So they're trying to streamline that process to help it a better experience for you as a customer. The other thing that's happening is that we're saying it contract. So the insurance companies are gobbling each other up. So recently Zurich have bought one path. Um, AIA have bought Commonshore. Um, so they're consolidating these businesses into

Veronica: Is this part of the fallout of the Royal commission?

Craig: A little, some people are stepping away from insurance or together or trying to get away from it. Um, and others are just not. Artists think that my dream would be that each insurer specializes in something. You know what I mean? So Zurich specializes in property developers and um, uh, so you kind of, everybody knew that, you know, it's like APIAf you're over 65, you're going somewhere for age pension stuff, fraud, you know what I mean? That would be my dream because it just makes it clear. And then you could get competitive advantages. So they would focus primarily on their map. I would love that to happen, but I don't think it will. Therefore, I understand all the risks that are inherent in particular to that market. So until such time as that happens, I think everybody's got sweet spots that they prefer. And that's my job to know what those ones are. So some prefer fly in, fly out miners or professionals or whatever it might be. Um, so

Chris: Who are these providers, cause I think, um, you know, people don't really know if I want life cover, who was some of the companies that you use because you know, they're not really massive mainstream. But once people like I've heard of those, you know.

Craig: Yeah. So Zurich AIA, One Path who's been bought by Zurich, you've got a towel, you've got, uh, who else? Ne also some of the newer ones. AIA, integrity, MLC, AMP, there's heaps. Um, but they're not getting a lot.

Chris: That's an interesting story though. I like they have one of the providers that have a lot of legacy issues. Um, and you know, they were, you know, basically their insurance book was losing money every year. Um, and you know, you can see what's happened to the AMP share price, but you know, they basically had to sell their insurance company. They sold it to a company in New Zealand, um, for resolution. And that's all kind of, because that was just losing money. So if you had an insurance policy through AMP and you've got an amp super phone, you've got AP insurance, you've got to be a bit worried because you don't know what, you know whether that's going to be a longterm sustainable model. They can up your prices at any point in time. So you've gotta be really careful when you select an insurance company, you pick someone that's an established player that's growing, that's in a good position because they're less likely to want to screw you over as a customer. I guess.

Craig: I think the other frustration I get as an advisor is I meet with someone who has moved insurance companies multiple times, right? I mean it's a, it's a bit of a telltale sign that it's not a very nice process.

Veronica: You want to avoid it.

Craig: So I honestly try and maintain where I can. That's genuinely, my intention is to make it as less of a pain point for you as it possibly can be. But the reality of it is, and you talk about commissions and that sort of thing, if you move policies, you get paid each time. Um, so let's say I moved from here to another provider as an advisor, I get paid which benefits me and most people do it and it's you might say $50 bucks. And I'd say, well, would it be worth going through all this exercise potentially getting and the risk of not getting what you want now to go through that whole thing?

Craig: And the answer is no. Find it very difficult to justify that and the challenges that you could find anything in a policy and say, Oh, did you know that this doesn't cover you as well for this anymore? You could find a reason that people should move out if you had bad intentions and I can't fix that problem or don't think commission versus non-commission will fix that issue because it just comes down to the integrity of the person. Really that's the reality.

Chris: If you go to one, a good insurance advisor who's got your best interests at heart, they will research the whole market. I was structured the policy the wrong way, you know? Yes they could potentially try to make more money, but if they've got your best interest, how they're not even thinking like that. They're just thinking this is what we think is the best recommendation. And then sometimes you scale it back if they can't afford it, you know, that's really what happened.

Chris: every week we hear incredible stories of the dumb things, property buyers do, dumb things that end up costing you a whole lot of money and or a whole lot of stress mistakes that can be avoided. Please. Craig, can you give us an example of a property Dumbo, we can all learn what not to do from these stories.

Craig: I do. We spoke a bit about the state planning side of things and I think a lot of people with property, when I'm speaking to them, the insurance and the estate planning go hand in hand. So when we're talking about these sorts of things, I met with a lot of people that might have a 99% 1% ownership, that sort of thing. And so the property on the property ownership, so it doesn't actually reflect the position that they're in.

Veronica: So, and then what happened, for instance, if I'm like they might husbands bombings stereotypical of course, but husband may have a business, then they want to protect the assets. So they put nine and 9% in the wife's name. He's not working once again stereotypical, um, however, if that's where the assets lie, ensuring it then this disproportionate in terms of the actual contracts,

Craig: it's, it's more so, um, take off the insurance for altogether. But it's more of this state planning element element of it that it doesn't actually reflect the position. So they haven't considered it, they haven't spoken about it. And if something happens to one or both of them, they walk around, they leave a mess. So the biggest property Dumbo I could say would be you do all these fancy things, but if you neglect the easy part, which is getting the document that just articulates what you've actually done.

Veronica: Oh yeah. The will.

New Speaker: Yeah. Right. Okay. And on that because tenants in common, I don't know if it's the same in Victoria, but in new South Wales for instance, on the front page of a contract, you've got tenants in common or you've got um, joint tenants. Thank you. And the tenants in common is where you can change the proportion. And so if you're joint tenants, so most married couples for instance, will buy a property as joint tenants and you don't even have to tick that box because that's actually what it defaults to. And so say Chris, you died, your wife Mel would just automatically get the rest of the house right? Or vice versa. Whereas if you tick the joint, sorry, the tenants in common box, it can still be 50, 50, but then your half goes into your estate and then poor old Mel has got to sort of find out that um, or you can switch, you can actually change proportion might be 10% 90% or something like that. But yeah, the whole point is it goes into the estate and what a nightmare for the person lift over the mind in the homeless.

Chris: I think it's a good point because I think, you know, how do you, cause insurance is maybe 80% of it, but yeah. What's, how do you help aren't people around the actual estate planning? Like what do you think is really important there for people to consider? Cause we didn't cover that.

Craig: Well I'm not a solicitor so I don't execute the documents but I've certainly spoken a lot about this part because I think you're kind of doing half the job if you get all this money but then you don't correctly tell it where to go. So um, your point Veronica about where it goes and tax implications and that sort of thing. You could be insuring for a number but that's not the amount that actually goes there. So we have a lot of conversations around these sorts of things as to who should own it, but why not just put it through Super, done.

Chris: Yeah. Know what are some of the other things in that kind of will that people, you know, some people think that you've gone get a initially and just go to Austrlia post before you can get a $9 90 willand that's fine. But one of the things that you really need to think about with a wheel, because a lot of people just haven't done it well.

Craig: A cheap will becomes expensive very fast. So, uh, the wheel kit goes to state trustees and the state trustees take a percentage when they pay out the will so when the will is executed. So, um, what is cheap becomes expensive very fast. So I just think that, but it's hard because you normally do all this stuff when you start a family. So not only you potentially going down to a reduced income for a period of time, you've now got an extra mouth to feed. You now need insurance and you've probably bought a new house. I'm now going to go and spend $1300 bucks on a will. Do you know what I mean? Like you've got all this sort of stuff that just hits you like a ton of bricks. And so for me, when I'm talking to people that have just bought a house, I just say go and get that sorted, right, get it settled, get everything done, get into that house because this isn't going to help get that property settled.

Speaker 4: Yes, there's a risk, right? If something happens between now and then, but if you try and do everything at once, you'll do nothing. So I just think chunking it down and getting it done methodically works and there's ways to do it that you can completely handle it to somebody else. If you want to like step back completely get the solicitor, Adobe, you're going to pay for that privilege. And I think most people, if you go to a solicitor, it's pretty common, right? Like even if you've got blended families, whatever it might be, it's nothing that the solicitor hasn't spoken about before. So

Chris: no, that's really good advice. I mean that's, I think I really liked the bite sized chunks because a lot of people will go see an advisor or whoever and it'd be all these things that they should do. But it's also about just trying to do one at a time, get the, you know, make sure you don't stuff any of them up rather than, you know, cause you get over in a too much and you end up not doing it or you do half ass jobs and then you kind of, you know, you don't ever do it again. You never reveal it. So I think with the, um, the solicitor and the lawyer is, it is one thing that you could probably just do at once. Get through the pile, put in the drawer. The one

Veronica: One thing I would add in there is that you do need to go to a lawyer who is actually very experienced in estate planning. It's a bit like a property lawyer. There's lawyers and his lawyers, his people think they can write a will or that sort of stuff. But I think it's really important that you get someone who can actually go through all those different scenarios. Typically with our complicated family structures these days. Um, and, and go through it. What are your intentions, what do you really want to happen? If, if the worst should happen.

Chris: And you really need something called a Testamentort trust if you have got kids. But you know, if you don't know you need that and you haven't got it, you know, then I guess you really kind of hyping yourself up to, you know, you just, you would just, when you get paid out life insurance, you would just wish someone told you you need a testamentary trust.

Craig: And I think the challenge is as well going to meet with the solicitors difficult, you know, finding the time of doors. So there's, there's people that are doing it now via video and they'll do all those sort of things. But even signing the documents where the wheel is an absolute nightmare, you have to have witnesses and original copies. And I just think if we could find a way to make those things easier, you know what I mean? Like, that's the thing that frustrates me. More. People would do it if it was easier and it would probably get cheaper too. So I think sort of watch this space on that one, that this will be an area that will move.

Veronica: Fantastic. Thank you so much. I think I'm all, this is really important stuff. We haven't had a conversation about insurance yet and normally you think you'd be really boring but you are not boring. So thank you so much.

Craig: Thank you.

Veronica: we want to make you a better elephant rider. And this week's elephant rider training is, well let's expand on this idea of getting value from advisors that earn money from a commission. So as you know, I'm very much, I'm somebody who believes in fee for service, but there are certain industries such as mortgage broking, um, and obviously insurance broking where that's not really the done thing. And so, you know, insurance brokers get paid obviously a commission trialing commission over many years and sort of mortgage brokers. So let's talk about how to get the most out of that service that effectively you've paid for in a way, cause it's built into the pricing of whatever you bought. So if you bought a mortgage effectively it's built into the pricing of your mortgage. If you bought insurance is built into the pricing of your insurance as the model of the way the industry works.

Veronica: We've talked, discussed this a few times, you and I Chris, in terms of the annual reviews that mortgage brokers might do with their clients as well. So I thought you might have some good ideas for how consumers, you know, property owners, certainly people who are dealing with brokers or insurance brokers, anyone that is providing them advice but actually not getting paid directly from the consumer. How best to get value out of that.

Chris: Well, I mean you really need someone that's going to give you a service that's not just getting you the product really is actually advice. If you go see a broker and that you're walking in and they just say, look, um, you know, I think the best rate in the markets 2.99 do you want to go with that? Well, you know, if there's not an actual strategy around structuring interest only principal and interest, you know, cross secure and don't cross secure, you know, do you need offsets, you know, actual mortgage strategy, then really why are you even using a broker? Potentially you could just go online if you know the strategy yourself, um, and get an online product. So the good advice,

Veronica: A lot of people dont I realize that you can have a strategy and be such a thing as a strategy. They just thinking you're going and getting the mortgage.

Chris: Exactly. And so good when you sit down with a good mortgage broker though, who someone's asking you questions even around what you're doing. Um, and you know, making sure that you're doing something that fits into your longer term plan. I think that's where you'll get a really good experience from my mortgage broker that does a lot more than just get you the product.

Chris: The end of the day, they'll still get you the product. A good broker will still get you the best rate and will still choose them as your lender and we'll actually give you other options as well. Um, I mean we're doing a loan at the moment, like a client who we've got them at 85%. No LMI, my through a bank that, you know, it's not advertised. You know, it's only cause we applied, we asked for an exemption and we got it. Um, anyway, he would have 80% elsewhere and not had much money in his bank. So it was just, it's not advertised that rate or that structure. So that's where a good broker will help you. Yes. He ended up might get the same product is if you searched online, but there would have been a lot of advice around it. It's the same with insurance, I think with insurance is even, you know, it's a lot more complex than broking because there's lots of buttons.

Chris: Yes, no. Do we need that? Do we not need that? How much is it? Should I get it? You know, there's probably 50 different things you could put have to say yes or no to. And unless you've got someone who really understands the cost of benefit, um, we'll probably say no to most of them, but yes to probably three or four. And it's just knowing what to say yes to. And then secondly, you've got gotta be really careful with the financial advice and insurance because good advisors will go and research the whole of the market and we'll go and do a comparison with everything and then pick the cheapest insurance provider that gives you the best product. But unfortunately a lot of advisors will just recommend who they're licensed through. So if you go to a, you know, a bank type financial advisor, they will just recommend that bank's products.

Chris: And so, and unfortunately that's happened for years. So you really need to make sure when you are sitting down with the advisor, what's this, the advice, the strategy, the structure, focus on those things. And then once you've got that, ask them to show you the evidence, how are they went to the market and why they're choosing that insurer. Because a good advisor will be able to just rattle it off and then you'll know that you're in the right place.

Veronica: and a bit the same with a mortgage broker and it's the loan recommendation.

Chris: It's the same recommendation. Like when we're recommending we don't just automatically assume it's going to be the best bang. We kind of then make sure that is the best bank. We go back to our panel and go, yeah, actually no, no, it is Macquarie. I know it is ING or whoever it is. Um, we have actually done that. So when a client asks us that, we've got the knowledge there. So it's not like we're like, you know, flat flapping, trying to come up with a reason we're recommending, you know, nasty. Yeah, exactly. Furious. Good brokers will be unexplained. Now this is the best option.

New Speaker: So Craig did talk about annual reviews with mortgage broking. How often should a client say go back to their broker and say, look, I need, I would like everything reviewed. Yeah. It's fair enough to go every year and just say, look, can I get better pricing? There's no reason. Yoga. Yes or no, you can send off a pricing request at every bank. Some banks make it much more difficult to get a better rate. So if you sign into a contract two years later, that rates no longer as competitive. A lot of banks make it a nightmare to get on a better rate, but some banks you can just literally do an online fall and then it's applied straight away.

Chris: So it does, um, in any, in, unfortunately you have to do that every year or two because the banks, the way they make money, it's not off getting you as a new customer. It's off existing customers who are on poor rates. So you have to keep on top of your mortgage because, and also as your biggest expense in life, really, it's where you're, you know, you don't spend, you think about how much interest you might be paying a year, it could be 10, 20, 30, $40,000 a year. So you really need to make sure you can just keep tweaking it.

Veronica: Please join us for our next episode when we actually have an argument or full blown argument. Both Chris and I have an argument with our guest next week, Dr. Andrew Wilson, who is possibly Australia's best known independent property economist. Now you're going to have to choose him because he sees a doozy. You are going to learn a lot about auction clearance rates and that's really important. You're also going to learn what we argued with you about and you got to say to the end cause, it's a good one.

Chris: Don't forget, we're on all the social channels. We're on Facebook, we're on LinkedIn for on Twitter,

Veronica: or you can connect with us on theelephantintheroom.com.au, The links are all there for you.

Chris: Please connect and send us a message. We'd love to hear from you.

Veronica: until next week. Don't be a Dumbo now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent who will tailor and document their advice to your personal circumstances with a statement of advice.