Cost of Living: How much should you pay for insurance?

Bryce: [00:00:27] Welcome to another episode of Get Started Investing, a podcast where we attempt to answer the most common money and investing question. Community. If you are joining us for the very first time, a huge welcome. Congratulations on starting your investing journey. We do strongly recommend that you scroll up and start at episode one. Now, we are licensed, but we are not aware of your personal circumstances. So all information on this show is for education and entertainment purposes. Any advice is general advice only. With that said, let's crack on. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How are you?

Alec: [00:00:59] I'm very good, Bryce. Good to be here for this episode. The most exciting part of the household budget is insurance and financial services. Can't wait to hear what you have got. And it's not just me that's looking forward to hearing your thoughts. We've been flooded with calls from the community asking to hear how you think about insurance and financial services. 

EM Community: [00:01:26] Hey equity mates. The Cost of Living series has been super helpful lately. Could you tell me more about how to reduce my insurance costs?

Bryce: [00:01:34] Well, then let's jump in. Before we do, we must give a shout out to our book, second book that is being launched. It is being launched next week on the 22nd of August. It's called Don't Stress, Just Invest. And it is all about how to automate your investments, get on with life and understand that taking the market return year on year is more than enough. So it's available now for pre-order. The links are in the show notes. You can get it at all. Good, good bookstores online. And as we said, it's released next week. We're super pumped. So if you would love to support the equity mates journey, please grab yourself a copy and grab one for a friend or family member as well who is struggling to, I guess, feel confident to get involved and started investing because at the end of this book, no doubt you will. You'll have the confidence and also the know-how and a very clear plan on how to get started investing. 

Alec: [00:02:27] All right. Bryce, Well, with that said, let's get into insurance and financial services. It's one of the 11 buckets that make up the Consumer Price index, which tracks how much prices have moved in the Australian economy these days. The prices have only moved up. Insurance and financial services is up about six and a half per cent over the last year. Included in the insurance and financial services bucket is insurance premiums, financial advice fees, financial product and service fees, credit card charges and bank charges. Probably not surprising for a lot of people. Insurance premiums have been a key driver of the overall price increase in this category. Did you know that in March 2023, the quarter ending in March 2023, insurance recorded its strongest quarterly rise since 2000? Wow. I was eight in 2000. Wow. It was up 3.5% just in the March quarter. 

Bryce: [00:03:28] Wow. Well, it definitely makes up not a huge portion of my budget rent, but insurance is definitely in there.

Alec: [00:03:36] Let's start with you and then get to me. You're going to have more insurance than I am just because I don't have a car. But let's start with you. Let's start with what you do. And I guess if you factor in any of these other financial services, but like I know you don't have financial advice, I imagine you've cut up your credit cards as you try and get pre-approval for home loans we have. So I feel like the main bucket that remains here is insurance premiums. Yes. Rather than just guessing about your budget, why don't you just.

Bryce: [00:04:05] All of them? Yes. So I guess none of the others apply in terms of a line item, but financial product and service fees, like obviously that's brokerage fees and bank fees and those sorts of things. So I obviously have thoughts and we've spoken about it a lot around just ensuring that for all of those things you're reducing your fees as much as possible. But I don't have a line item for I expect to pay this much in brokerage. Yeah, so I do for insurance. So I have multiple, multiple types of insurance. We've got car insurance which is comprehensive and that's about 800 bucks a year. I have health insurance with NIB and I pay about 100 bucks a month, $102 a month, I think. And that gives me the basic cover, plus I think eye care or whatever it is I need eye and dental.

Alec: [00:04:58] How much do you pay? 102 for you and him or just me? 

Bryce: [00:05:02] Okay. Yeah. 102 for me. Harriet has also signed up. She pays slightly more. She has about 120 a month. But that's for health insurance. And then we've also got insurance on her engagement ring. If we lose that, we can. The cost of that. So, yes. So three types.

Alec: [00:05:23] How much you pay for that, if you don't mind me. 

Bryce: [00:05:26] Asking, 35 bucks a month. 

Alec: [00:05:28] Oh, that's cool.

Bryce: [00:05:28] Yeah, well worth it. I did the sums and like, yeah, it's definitely worth it because it's full. It's for anything. Like if you genuinely lose. 

Alec: [00:05:36] It, if you like, take it off while gardening or. Yeah. Yeah. Cleaning and drop it down.

Bryce: [00:05:40] Yeah exactly. Yeah. Yeah. It's not just like a it must be stolen from your chest of drawers. 

Alec: [00:05:45] It's not like travel insurance where it's like you need a place for call in. 

Bryce: [00:05:49] Yeah. Yeah. So those are the three types car. The biggest. That's yearly monthly for the ring and then monthly for health insurance. 

Alec: [00:05:55] No, not to critique you on your maths, but if cars 800 a year and health is 102 a month, health is actually the biggest. 

Bryce: [00:06:04] That's a very good point. 

Alec: [00:06:05] Thanks for that. I just want to prove I've been listening. 

Bryce: [00:06:08] Yes. What I don't have, but I have been thinking recently about is income protection.

Alec: [00:06:14] Do you not have that through super. 

Bryce: [00:06:15] Not through superhero? I don't. 

Alec: [00:06:17] Yeah, I have it. You can opt in. Yeah.

Bryce: [00:06:19] Because when they signed up they definitely didn't. 

Alec: [00:06:21] So I've just pulled up my superhero super account I have. Life insurance. 250,000 TPD Insurance. 250,000. So TPD is total and permanent disability. And looking at that, I pay 14.3 cents a month in premium for that. And then it says income protection is coming soon. 

Bryce: [00:06:42] Because TPD, as I understand it, that's just like a bulk payment, whereas income protection is an ongoing for a period of time. 

Alec: [00:06:51] Okay. Yeah. Would you get it outside of your super? 

Bryce: [00:06:53] I have been thinking about it. Yeah. And my parents are kind of, you know, in my ear about it as well.

Alec: [00:06:57] I feel like as soon as you have kids, it's even more important. 

Bryce: [00:07:01] Definitely.

Alec: [00:07:02] How would you be able to get income insurance for a business like equity made? So like.

Bryce: [00:07:06] I think that's when you want it the most. Well, I don't think it's like your business has gone bust. We are covering your income. It's like you can't work. 

Alec: [00:07:14] Would I be protected under your policy because you Couldn't Work? That would affect my car. 

Bryce: [00:07:18] But Dad spoke to me about this on the weekend. He said you guys should definitely, through the business, get Cayman insurance. Yeah, which is where because it's so reliant on key personnel, if one goes down and it significantly affects the operation of the business, you can be insured for that and kind of can carry on while the other person, while the key man or woman gets back. 

Alec: [00:07:43] Interesting. Yeah. Let's get it.

Bryce: [00:07:45] Yeah, we should. 

Alec: [00:07:46] And then tell you how it is.

Bryce: [00:07:48] Doesn't work like that. It's not like if Cayman goes on holiday, but yeah, so I'm definitely thinking through it because as you said, as you get older and start planning things out, all these things become a little bit more, I guess, relevant. Yeah. So that's mine then. We're going to take a quick break. And on the other side, I'm keen to find out how you're insuring yourself. So we'll be right back. Well, welcome back. We're talking about insurance and how it appears in our budgets. What about you and how does it appear in your budget? 

Alec: [00:08:28] Yeah. So I don't have a house. I don't have a car. I don't have an engagement ring. So there's a number of insurances that I don't have to pay for. The big one for me is health insurance. I was actually really curious to see how much you spend because I put what I spend in our prep doc. And you hadn't put yours in keeping your cards close to your chest. And I realised that I had no idea if what I was paying was good or not. I pay $133 a month. 

Bryce: [00:08:57] Yes, that's certain. 

Alec: [00:08:58] Yeah, it's more than you. But I have hospital and extras like the same dentist and optometrists and stuff like that. Yeah. 

Bryce: [00:09:08] I think it must just be when you get in because I've been with them for a year. 

Alec: [00:09:11] No. But like, is it because. Don't they check your rates. 

Bryce: [00:09:14] They do my rates. It started at like 42 bucks a fortnight. It was in the eighties when I saw. 

Alec: [00:09:18] Oh okay. So they give you a percentage increase but it's not like they'll normalise it with.

Bryce: [00:09:23] Yeah. Could be I could be wrong but I definitely was in the eighties when I signed on and now it's 101 or whatever.

Alec: [00:09:30] Have you added pregnancy to yours. 

Bryce: [00:09:32] No, but you need I found out the other day that I think you need to do it 12 months. 

Alec: [00:09:38] Yeah, that's why I was just sort of saying Wait, I don't know if it's. Yeah, I think you have to give it a bit of runway. Yeah. 

Bryce: [00:09:45] It's not something you can, but I think it was so much so. And maybe Sascha is obtrusive. If you're listening, I can add in. But like, it's not something you can be like, Oh, we're pregnant now. Let's get it. 

Sascha: [00:09:54] Yeah. A friend of mine got caught out because they were like 11 or ten months into adding it when they got pregnant. So she ended up having to go public hospitals and stuff because, yeah, they just missed it by like six weeks. 

Alec: [00:10:08] Do you just lie about your date? And then you say, Oh, well, I don't think it's a month premature. 

Sascha: [00:10:15] Oh yeah. 

Bryce: [00:10:17] So they were saying that I'm noticing about insurance a lot of the time then now you know how when you go to sign up there's waiting periods. Yeah. And so a lot of them now are reducing the whole sign up now and we, you know, get rid of all your waiting periods and you can come straight in for my insurance for that reason. It's one of those kind of more sticky spends in my pocket. I don't feel like I want to take the risk in some way, shape or form of changing and then having waiting periods, even though the extent to which I use it at the moment is minimal, if at all. Having to wait six months or whatever for dental and NIB on my health insurance, it's not something that I'm actively, constantly shopping around for. I kind of just cop the fee. 

Alec: [00:10:58] If you do shop it around. So when I got health insurance because I got health insurance because of the Medicare levy, you know how if you're earning over a certain amount and you don't have hospital cover, oh, no, you don't have private health insurance, you get charged extra on your tax. So that's a really simple one for people. By not having private health insurance, you might actually be paying more money depending on how much you're earning. So that's one thing to keep in mind. I went to I select and to compare the market and, you know, just put details in God. They are relentless, especially I select. 

Bryce: [00:11:31] As soon as you give them contact details. 

Alec: [00:11:33] Type details, they're on the phone to you and they're not stopping. And yeah, they are. They can be helpful, but just be prepared for an onslaught of communication. 

Bryce: [00:11:43] Yeah. Yeah. I mean, yeah, I remember I did that when we moved into a house, you call them. So like a comparison of electricity and before you even hit the submit button, they're calling you. 

Alec: [00:11:52] It's unbelievable. The other thing to keep in mind, if you're in your thirties and you haven't got health insurance yet, by the time you do get it, it may end up being more expensive. There's this thing called lifetime health cover loading, and I don't really hear a lot about it, but back when we were in Canberra, I actually worked at the Department of Health's call centre. There was a phone line that we stopped every year because everyone was confused by it. The government make insurers. Charge you more the longer. It's like an extra 2% every year over the age of 31. And I think it's for like up to ten years. So if you got it when you were 41, so you would be paying an extra 20% because you're paying this lifetime health cover loading and then it rolls off at some point. Yeah. So policy details sort of six years old and a little bit fuzzy in my mind, but that's the general gist of it. And it's it's the government trying to incentivise us to get insurance when we're younger because the insurance pool only works if there's enough fit and healthy people to subsidise the people that are claiming on their insurance. Wow. Yeah, there you go. 

Bryce: [00:12:58] Well, we focussed a lot on insurance there, primarily because. 

Alec: [00:13:01] I do have one, not insurance one. 

Bryce: [00:13:03] Okay.

Alec: [00:13:04] Yeah. So I made the big change for my brokers. I was with a broker that was charging $8 a trade, which was pretty good at the time. Since then, some better let you know The stakes in the superheros and stuff have pushed into Aussie shares and have reduced cost shares. These as well. I have moved my core portfolio to a broker that charges $0 for ETFs. People can figure that out if they want to, and that's just because I'm dollar cost averaging and every fortnight, every time I get paid. And it didn't make sense to be paying $8 broker. Yeah. So and because there was a couple of ETFs that I'm buying every fortnight. Yeah. And so now I've reduced that to zero. 

Bryce: [00:13:48] Yeah, I think my comment to that is really you shouldn't be paying over, I don't know, five bucks in brokerage. There are two online brokers, Super Hero and stake that both give you access to the US and Aussie stock markets. So $5 or less yet.

Alec: [00:14:03] CMC and now $0 if you're less than $1,000 trade. 

Bryce: [00:14:08] There you go, CMC. 

Alec: [00:14:09] Sharesies all shares. Is there a percentage thing they might be a little bit over, but they're right there or thereabouts as well? 

Bryce: [00:14:16] Yeah. So if you're paying brokerage more than that. Have a think about why paying more in brokerage. Are you getting some sort of other benefit that you wouldn't get at these other brokers otherwise? I would definitely think about moving. There's no reason you should be paying $10 plus for brokerage. And similarly, Ren, I think credit card fees, the annual fees on credit cards, that all adds up. And in this day and age, I don't think you should be paying maintenance or an account fee on a transactional bank account. No. And or even like a checking account or whatever. You should just find the banks that give you the zero fee low ATM, even though not you don't use a lot of ATM, but transaction fees like that all adds up. So. Yeah, it's the micro changes that make a difference. 

Alec: [00:15:05] And this doesn't get factored into the inflation story. But if your savings account doesn't have a four or five in front of it, there are better options out there for you. Yeah. 

Bryce: [00:15:17] High fours or five.

Alec: [00:15:18] Yeah. Really. Five. Anyway, we've done heaps of content on brokers and savings accounts, so I don't think we need to do any more. No, but hopefully we've given some help on insurance. I don't know. 

Bryce: [00:15:33] If anything, this is just good insight into how you and I. 

Alec: [00:15:35] Yeah, yeah, yeah. 

Bryce: [00:15:37] So next week we closing it out with I look at the health bucket and how we can save and what we're doing in the health side of things. A reminder that if you want to join the conversation, head to the Equity Mates discussion Facebook page. We'd love to hear from you and with your ideas on how you're saving on insurance and financial services. But then we'll leave it there. We'll pick it up next week.

Alec: [00:15:59] Sounds good.