Life Insurance – how to save money.
The Story
If you want to learn more about insurance before reading this article please read these – Insurance the nitty gritty, Insurance Part 1, Part 2, Part 3.
Hi everyone. I never thought when I started the research for this article that saving $12,000 on insurance fees was even possible. I’ve proved myself wrong again. When I was younger I was told to believe that people with more experience and qualifications than myself were worth paying money for. This has been true to some extent although you will see from the amazing amount of money I have been able to save my family that it is not always true!! This is the classic tale of moving from one highly paid professional to another while being charged exorbitant fees along the way. I’m not saying that the advice I received wasn’t good but rather that I was overcharged for the advice and eventually I decided I could do an equal or equivalent job and save myself thousands of dollars. I suppose it’s not hard to realise that many of the things I’ll be talking about are essential but can also vary drastically in price. When I changed products (and this is mainly about insurance) the difference in prices was amazing and proves that it is always worth shopping around. It did take quite a lot of time to work out if we would be better off searching for alternatives but it turned out well eventually.
Also I need to point out that the drastic price differences also come about because I decided we could take on some more risk to save ourselves some money. Life is always a balancing act and usually the more insurance you pay for the more expensive it gets. When I started this journey we bought two investment properties and a holiday house which in hindsight were bad decisions for us. I know that Australia is supposedly built partially on the back of property investment but our adventures in the sector were not good. It was an example of bad advice, bad timing and over confidence on my behalf. We eventually reduced our debt which is why we were able to reduce the insurance cover. This is only part of the story though as you’ll soon see.
Life Insurance
This all started in 2007 when I decided to pay for financial planning advice as a fee for service plan. Insurance was a part of the plan and because we had taken on debt for properties our life and income protection insurance were very high. We were insured for something like $1,000,000 and my wife had income protection insurance even though she had a huge amount of sick pay and long service leave outstanding with her employer. We went on paying the insurance instalments (around $14,000) for years until I noticed we had very little disposable income left over and we were going nowhere. I decided in 2015 to look into alternative insurance myself and just one phone call saved us $8,500. $14,000 – 8,500 = $5,500. We changed from the insurance my financial planner had recommended to a company that advertises on Australian TV which I thought offered a better deal.
Once again, in 2017, I looked into changing our insurances to my wife’s superannuation fund which is an industry super fund. This type of fund available through government departments, emergency services or union organisations usually have comparable performance but much cheaper fee structures. Once again I was shocked because I reduced our insurance premiums from $5,500 to $2880. You must realise though that I reduced the cover to less than $700,000 each and the cover ends when we turn 65, rather than the original which was for the rest of our lives.
Superannuation and Financial planning
Those of you that have read other articles on this blog will realise I don’t have a high regard for Financial planners especially as most of the information you need is free these days. When we decided to change our insurance we also decided to take the money we had with a financial planner and transfer it to my wife’s industry superannuation fund. The fees they had charged us over the last few years were higher than the industry fund and the historical returns were just as good if not better in the industry fund.
The financial planner charged around $1,300 – 1,400 per year whereas the industry super fund charged $345 per year to look after the same amount of money!! Another $1,000 saved by making one phone call.
As you can see from the details above it is amazing how much shopping around and making phone calls can save. I felt stupid at the time that with all my knowledge I was able to be convinced to pay so much for insurance. If only I had realised a few years earlier I would have saved my family a bucket load of cash. Isn’t the saying “you learn from your mistakes”. I hope this has been helpful and if there are any questions please leave a comment below or use the Contacts page.
