We break down each of the main insurances and share our thoughts on whether they’re worth having.
We also discuss strategies for optimising the cost of insurance, other ways to protect yourself, and tailoring your insurance needs to your own specific situation.
(or download the mp3 file here)
Check out our other episodes on the FIRE and Chill podcast page.
Thanks for tuning in! If you enjoyed the show, please share it to help spread the word.
Have something to add to this discussion? Share your thoughts in the comments below…
My thoughts on ‘The Great Taking’. An idea that the masses will lose untold amounts of wealth in the next financial crash, due to a deliberate plan by mysterious figures.
I explain why (and how) I bought a Tesla. The experience so far. How much it cost, and ongoing savings/expenses. Charging options + EV basics. Tax rebates + subsidies. And whether you should get an EV.
Get my latest content and thoughts straight to your inbox.
A fresh dose of financial motivation to power your journey.
It’s worth checking your TPD and income protection insurance as some funds limit the payout.
My sister, a single mum with 2 teenage kids, just had an aneurysm and major brain injury. As she owned her own home, she had cancelled her life insurance, but thankfully had additional income protection in place to cover the kids school fees and living expenses.
Her Unisuper fund limited income protection to max 2 years. But she took out additional 5 years with TAL, for a total of 7 years coverage.
Interesting stuff John, definitely worth checking the details. I’m sorry to hear about your sister – an important example of insurance acting as valuable safety net.
I see you and Aussie Firebug are in sync again with your subject matters. It’s a conspiracy. ????
Haha I know! What the hell is going on!? When I saw his new ep I was like “oh no way, it happened again lol”
How’s that saying go again… “Great minds think…”
????????
Hahaha! Must be mate, must be 😉
Still in the middle of listening to this episode, but your opening bit about home and contents insurance made me revisit mine. It turns out I can save $250 per year by only insuring major furniture and appliances (why the hell is my estimated quote including 50K worth of miscellaneous crap like clothes, books, cutlery, and FOOD???) and a further $250 per year by eliminating contents insurance altogether. I do think having the basic contents insurance for the major stuff is still worthwhile though – it would be 70+ years worth of premiums to counter a once off devastating event where I lose all of my furniture and valuables.
Haha yuck! You can see my disgust with this particular type of insurance! Thanks for clarifying some extra details too, I had no idea cutlery and food was covered! Man that really gets me going lol.
I’m not sure on the calculations though, cos remember the price will be going up every year and don’t forget you can also invest that money to put you ahead by even more every year. Another way of looking at it is your premium is so cheap because the likelihood of that happening is so unbelievably low. As we get to later in the show, when wealth starts building the more profitable option is to remove any insurances for things we can cover ourselves.
Yeah honestly most of the stuff covered in contents insurance is stuff you’d be regularly replacing anyway, there’s no point insuring something that only has an expected lifetime of a few years. I do think contents is a bit different risk wise than buildings – building insurance being to cover damage; natural disasters and fires and such. Whereas contents can be affected not only by this but also by theft – and my account policy also covers accidental damage/loss as well. And theft is something you’re more likely to be a victim of than having your house burn down!
Hi guys. Great ep as usual.
Personal note on health insurance.
Our public health seem is generally geared toward stopping people dying. Stuff that needs doing urgently is done urgently as having people dying looks really bad. Car crashes, heart attacks, cancer etc.
When it comes to things like hip replacements, shoulder reconstructions, back surgery and the like that is generally where you experience significant delays.
Delays for this stuff are not only painful but they can also affect your ability to be employed and jeopardise your Income.
I personally don’t give a flying $&@! About a private room etc.
I don’t know the statistics of the surgeon and whether they are affected by easy or hard patients.
However I’ve had 2 back surgeries and I needed to get back working as soon as I could. Private medical without insurance is massively expensive.
Harsh as it is to say private hospital insurance is effectively “jump the queue” insurance and in spite of how poor value it is. I believe that for those in active jobs it is a necessary evil.
SK
Thanks for the comment and the extra info!
It makes sense that emergencies are focused on first, I don’t believe that’s a PR play. As you say, the waiting times can be hefty for non-urgent stuff, and I get your point about surgeries being expensive out of pocket. It’s a fair point you’re making and it’s personal choice at the end of the day.
Hi Dave and Pat. My understanding is that, if we are not prensioners, the ambulance cover is part of the private health insurance. If we don’t have private health insurance, how do we get ambulance cover?
Hi Louise. I believe you can still get emergency ambulance cover, a quick google search comes up with plenty of results. In any case, ambulance costs are something like $1000, so I don’t see why we can’t self-insure that as well if someone has already built some savings.
Also to add another thought. Warren Buffet loves owning insurance companies because of the cash flow model: the insurance company collects the premium up front, but (hopefully) does not have to pay out claims until some time later. In the meantime the money can be invested to earn more money.
Ah yes excellent point Leigh, I mentioned this in my article a few years back on insurance – https://strongmoneyaustralia.com/insurance-prudent-vs-costly/
Listening to the podcast I get the sense that you’re both (somewhat understandably) approaching this from your own point of view rather than that of the average listener. You’ve both already in a great position financially, have spouses who can help pay the bills or do so entirely if something were to happen to you, don’t have kids to worry about, are young and in good health, and don’t have a huge amount of possessions that you need to insure.
There are a lot of people out there though including many of your listeners who aren’t in your positions. They’re just starting out and don’t have any savings or have some minimal amount, they don’t have a partner to look after them if something happens (assuming the partner stays around), they have kids that will need looking after, they’re older and in worse health, they own a home with plenty of stuff in it that they need to replace if something goes wrong.
I also think that the two of you have very different risk tolerances to a lot of the population, partly due to your financial situation, but also having higher levels of risk tolerance as well as aversion to paying for insurance.
So I think it’s very important that listeners look at their own situations and their own risk tolerances rather than blindly copying what you guys are doing. I do seem to recall that there was something along those lines mentioned once or twice, but I think it’s definitely worth highlighting.
Cheers for sharing your view mate. You’re right, we always share what we do and why, but we are still giving our honest views of what we think is a sensible approach starting from zero today, while trying to provide some balance, even suggesting things we wouldn’t do ourselves. That’s why we mentioned many times that you need to consider your own situation, how you would cope, your own finances, how it’s personal choice, psychology comes into it, etc.
I really struggle to see how much further we could’ve gone. We also mentioned the risk tolerance thing too and how to approach it generally rather than specific ‘do what we do’. To be frank, this seems like an unfair comment given we covered the things you seem unhappy with. Doesn’t sound like you really heard us. If we put more and more caveats and bullshit around content, then we end up saying nothing at all and it’s just a complete waste of time.
Good ep. Love the pod and all you guys do so thanks for that.
I was surprised you guys didn’t go deeper in to the different “personal” insurances types (income protection, death, trauma, & TPD) and where they might be more useful in different scenarios. Personally, for me these are the insurance products that potentially offer the most value as they help protect against events that can really devastate you Vs more trivial events like vet visits or putting a ding in your car (my opinion).
These two eps from My Millennial Money helped me get my head around these products more and think about scenarios where I’d use them in my own life (I recommend a listen – also gives a bit of insight on the “advantaged pricing” for financial advisors). I’m a similar age and stage to you and Pat and don’t have any of these insurances now (also removed them from my Super to reduce fees whilst I’m young). My thinking is to get death and TPD once we have kids on the scene and have a long term mortgage on PPOR, so if anything happens to me then the wife and kids will be secure in the home. Then once the kids leave school and the mortgage is close to being paid then cancel these policies as the risk in our life-stage would have been greatly reduced. I don’t really see a needs for income protection and trauma because this is what an emergency fund is for so really you’re self-insuring for those.
https://player.whooshkaa.com/episode?id=813669
https://player.whooshkaa.com/episode?id=814031
Thanks for your thoughts (and your support) James, much appreciated. At over 1 hour, we didn’t really feel like we had the space to go into more details and examples. But you’re right, a few examples on when they might be used would’ve been a good idea. Your strategy makes sense to me mate, and I would personally consider a pool of investments to be sufficient to reduce/remove the need for TPD/death since this could also extinguish the mortgage for the family in a worst case scenario.
But clearly it depends on so many details like expenses, dependents, remaining spouse’s income/ability to work etc, so there’s no correct answer. And unfortunately, it’s one of those things where there are an infinite number of scenarios, so it’s hard to fully cover the options for everyone’s circumstances 🙂
I suspect many would not be aware of this when it comes to insurance inside superannuation.
https://www.bdo.com.au/en-au/insights/private-wealth/articles/insurance-alert-major-changes-coming-to-income-protection-cover-from-1-october-2021
Part of the article
The following measure was delayed, and will now apply to policies starting from 1 October 2022:
Policies will no longer be ‘guaranteed renewable’. As a result, every five years the insurer will revise the terms and conditions of a policy and re-assess the insured’s income and occupation position. This compares to current policies, which lock the insurer in to the terms and conditions from policy commencement and can’t be made worse, only improved for the benefit of the insured. This means:
If you changed occupation to something ‘riskier’, or were earning less (or perhaps not working at all at the time) and the policy was reviewed at this five-year interval, you could find the cost of the cover increasing or no longer being offered at the same level of cover.
Of particular concern, at the five-year interval should the insurer remain unprofitable, the insurer may also be able to change the terms and conditions required to be met to make a claim, making it harder to successfully claim.
PS sorry for the formatting. Hopefully Dave can tidy it up to make it more readable. 🙂
Hi Dave,
Great podcast, I agreed with most of what was said but I did not agree with your views on on Building and Contents insurance. The main benefit of it was not discussed and that is the inclusion of Legal Liability Coverage.
Most policies will provide coverage for as standard but the amount varries. Typicaly policies cover up to $20 Million. In Australia more and more people sue for damages. If a person gets injured or had their property damaged and doesn’t live at your home, you could be legally liability to cover the costs. This is also applicable if you are a renter. If you are a renter, the only way I know of getting this is to take a cheap contents insurance. Like you discussed the risk is very low but the costs here are very difficult to self insure against.
Hey NatGee. Good point, we forgot the legal liability cover, and as you said can be included in a typical building or contents insurance. Nice pickup!
I usually enjoy listening to FIRE & Chill podcast, but listening to the two of you who don’t like insurance, who avoid taking insurance and don’t know much about insurance discussing insurance made me cringe.
You seem to confuse funeral insurance with life insurance at one point. And when you tried to answer a listener’s question about retail advised policies, you exposed your lack of knowledge and research. All you had to do was ask an insurance broker and you would have discovered that there are three ways to acquire insurance: group, direct and retail advised. Advisers have access to lots of policies that we cannot buy directly from insurers. Often these policies have better terms, better prices and there’s a professional to help you claim if you need to.
At least it made me grateful how lucky I am to be adequately insured.
Stick to discussing Barefoot Investor instead, fellas. You know more about him than you do about insurance for sure.
Neil, we’re two blokes sharing how we approach certain topics in our financial lives, with insurance obviously being one of them. Does it mean we know everything on the topic? Of course not, and we never suggest otherwise. We’re quick to say when we don’t have all the information and that there are many caveats and considerations that need to be accounted for.
Avoid taking insurance? Not true. Don’t like insurance? We’re in the middle – understand it’s a losing bet but in many cases is a good move. Don’t know much about insurance? If that’s your opinion, fair enough.
We’re well aware of the differences in funeral vs life insurance, thanks. And we brought up the listener question because it’s an interesting thing that I hadn’t heard before, and precisely why we also asked people to write in to us if they have more info. Think about it: If I was trying to pretend I knew everything, why would I deliberately bring up a question I didn’t have the answer to and then openly say so?
Hi guys, great episode. I agree with a lot of what you were saying but I don’t know many people who share that view.
I used to have a lot of insurance, Income Protection, Pet, motorcycle, I even insured my phone once. WTF? Then I got into FIRE and cut everything back and became interested in the idea of ‘self insuring’ and reducing our insurance to just home building insurance and 3rd party vehicle. I did loads of searching online but never found anyone who had the same idea*. All I found were articles and blogs about how you probably need more insurance: “Did you know 75% of people are Under-insured etc”. I think insurance companies commission these articles and people just lap it up.
Yes, things can happen and you should obviously make sure your family will be able to pay the bills if you die or get seriously knackered, but if you are well on your FIRE journey, your shares/super should cover most of that.
*I eventually found a good MMM article called something like “Insurance, for people who are bad at Math”
The way I figure it, if your insurance company thinks you are less liely to crash your car than you do, what is going on?
Cheers for your thoughts Narrds. You’re right, it’s not a common view, nor a popular one it seems. People get pretty passionate about insurance for various reasons. Some extremely valid, some fear-based (a huge driver of insurance take-up, hence the marketing style). It’s one of those things that seems to be “don’t question it, just do it” which never sits right with me.
Very personal topic, but it’s not extreme to suggest that people consider the possible scenarios and question what they really need (just like other expenses).
Thanks guys, I enjoyed the episode as usual. 🙂
There are two smaller ‘insurances’ that I wouldn’t be without. The first is Ambulance coverage (about $90 a year for two adults, and has saved us literally thousands as my hubby has had three rides in an ambulance over the years).
The other is RACV Roadside Assistance. We currently pay for the top level one, because I don’t fancy being stranded on an outback highway somewhere, with our caravan attached. They will then arrange to transport the car and caravan to somewhere suitable and provide temporary accommodation if needed too. Not something we’ll need forever, but just for peace of mind at this stage. 🙂
Thanks for your thoughts Laura. Glad to hear you’ve got more than your money’s worth, though I’m also sorry to hear that at the same time!
I hear what you’re saying with the roadside. Did you know you can actually ring and signup on the spot and they’ll come out immediately (if Vic is same as WA). I’ve done that in the past and it worked well 🙂