I love seeing how other people budget, getting down to the nitty-gritty of their categories and numbers, but I don’t feel it is fair to gain value out of what others are contributing without contributing something ourselves. As promised, here is the second Budget Breakdown for the Enough Time Machine. This represents how much we budget per month, not necessarily how much we spend. This week we are looking at Insurance.
Ouch! Insurance is hard. We are paying nearly $6,500/year for … nothing? For the chance that if something bad happens, we may get some monetary compensation. In a good year, where we don’t call on our insurance, we don’t have anything to show for the money that has gone. Nothing we can hold in our hand, or read, or consume. Nothing we can say that we achieved or experienced. In a way, it is like gambling, except we are not betting on a win, we are trying to cover the bet when we lose. When I look at our monthly spend, it almost feels like a protection racket – one that we voluntarily participate in. It is very much a risk vs. rewards game, however the insurance companies have the knowledge and technology on their side. They employ actuaries and computer programs and financial theory to calculate the chance we will invoke our insurance cover, based on a myriad of factors. I’m pretty sure the odds are stacked in their favour.
$152.50. This amount correlates to the actual monthly cost, based on paying 12 months upfront. Australia is a country that has universal healthcare, yet there are waiting lists for elective surgery in public hospitals. In 2014-2015, the median waiting time for orthopaedic surgery in NSW was 4 months, with the majority being seen within a year. Luckily Mr. ETT and I haven’t needed it (yet), but I can imagine that requiring a knee replacement and waiting for a year could significantly affect your quality of life.
Health insurance seems to be a minefield of choices. There are multiple providers. There is cover for hospital, and extras, and different levels of cover within those, or cover for specific procedures or illnesses. There are excesses, and day rates, and co-payments. There are percentages of cover. Originally we just took the lowest cost hospital with the highest excess we could find in order not to pay the extra Medicare fee. These days we are not earning close to the threshold for that fee, so it isn’t a consideration. What is a consideration is the lifetime health cover penalty that kicks in when you are 30, and increases by 2% for every year you age while not holding cover, up to a maximum of 70%! This is because the older you get, the more expensive your health cover becomes, and the system needs young, healthy people to subsidise it for we, the older, more decrepit ones. At least, now we have an Emergency Fund, I know we take the highest levels of excess and co-payments to reduce costs.
Goal 6: Research the best health insurance for us, including cost and services.
$55. This amount correlates to the actual monthly cost. This is for Mr. ETT’s motorbike. We are hearing of people who stack their bike (or have someone else damage it) on at least a monthly basis, so to me this feels like value for money. Crazy that I have that perception though, isn’t it, because the actuaries haven’t done any less work in ensuring the odds are on their side than for other types of insurance. It’s just my perception.
$100. This amount is still an estimate, because we haven’t been budgeting for a full year yet to have experienced actual cost. This is for our 2 cars. I did some investigation earlier in the year regarding the running costs of my car vs. alternatives, and came to the conclusion that it was still worth it for us to be a 2 car family. There are three types of car insurance, offering different levels of cover: Third Party Property, where your vehicle isn’t covered at all, it is for when you damage someone else’s car; Fire and Theft, where your car is covered for… well, you get it; Comprehensive, which covers all sorts of damage to your vehicle, and may cover extras depending on the policy.
Goal 7: Research car insurance policies and prices.
$50. This amount correlates to the actual monthly cost, based on paying 12 months upfront. I’ve already decided that I won’t be renewing this at the end of the year. Choice referred the company we were using to ASIC, and I am already saving for a vet category, and this is another space where our Emergency Fund could step in for us. Cancelling this insurance won’t reduce our budget – I’ll just take what I have saved in this and add it to the vet fund, and then keep adding the now saved monthly payment to the vet fund.
$102. This amount correlates to the actual monthly cost for one policy. We are actually, crazily, paying twice for life insurance. When we took out the mortgage nearly 2 decades ago, it came with a life insurance cover. At the time, superannuation was still fairly new, and I was advised that it did not represent value as much as our insurance outside of super, so I cancelled it. Over the years as I changed jobs, and the super choice changes come into being, my new super fund included life insurance and I just kept it. Same with Mr. ETT. I don’t think we are really candidates for life insurance now, though. We have no debt, no dependents, and we are both healthy enough to continue working if something happened to the other. If one of us did die, it is almost like a terribly depressing lottery win for the other.
Goal 8: Decide whether we still need life insurance. Compare the two policies we have (inside and outside of super), and shop around to see what else is on offer.
House and Contents Insurance
$90. This amount correlates to the actual monthly cost, based on paying 12 months upfront. I have met 2 people in my lifetime whose houses have burned to the ground and they’ve lost it all, and we have seen houses in our neighbourhood burnt out over the years. Of course, when you add in bushfires, floods, and other natural disasters, it really isn’t as rare a situation as I once thought.
I find home and contents one of the most difficult insurances to figure out. How much should we insure for? We have the land valuation certificate that comes every 3 years, so generally I tend to look at the approximate value of houses in our area, then take away the land value which should give me the value of the house. Of course that is totally related to the market, and may not reflect the realties of building from scratch, so I also need to look at how much it would cost to build a brand new house of equivalent size.
Contents I find almost impossible, but as I get older, this is becoming easier because I am placing less importance on the value of things. If we lost it all tomorrow, then it would be unimaginably devastating, but as long as Mr. ETT, Frank and Jelly were OK (and hopefully those important documents that just make your life so much easier), then I really don’t think that there are too many things I would miss. I know that we could go through the house and document everything and look up the prices, but that would take forever! I think there are also online tools that can help, I will have to look it up.
Goal 9: Figure out the best way to value our home and contents for insurance, then look around for the best deals.
Missing: Income Protection Insurance
I am inclined to look into this insurance, and I believe it is at least tax-deductible. The older we get, the more people I know who are falling to illnesses that take them out of the workforce for a significant amount of time – longer than all the leave they have saved up. Some workplaces are awesome, and keep their jobs open for them, but some have to make the decision to replace them. When you get to mid forties, the reality is that if you become unemployed, you are more likely to be hit by long-term unemployment. While Mr. ETT and I have each other, and of course could change our lifestyle to live off one wage if required, it would not be an ideal situation.
Goal 10: Research the costs and benefits of Income Protection Insurance
Missing: TPD Insurance
Total and Permanent Disability insurance. I haven’t ever given this much thought, and I’m pretty sure it isn’t a standalone insurance – I think it is usually bundled with life insurance.
Goal 11: Find out more about TPD insurance and assess whether we should have it.
All up, insurance represents 7.2% of our total budget. Watch and see how this graph changes as we investigate other Budget Categories.