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How to choose the right insurance for you
By Tammy May

Importance of insurance in your financial strategy

“This article first appeared in ‘Samara Magazine’, and online magazine for women interested in business and entrepreneurship. Please note that this information is general in nature and is not intended to be a recommendation for your specific circumstances.

Personal budgeting expert Tammy May explains why insurance should be an essential part of your personal finance strategy.

They say that the only thing constant in life is change. How true. Yet, while it’s impossible to predict the future, it is possible to safeguard your finances against some of life’s more common risks. That’s where insurance comes in by providing an extra safety net for you and your family should things not go to plan.

So, how do you choose the right insurance for you? Here are some pointers:

  • Your insurance needs are never static. The sorts of insurance and how much cover you need will change throughout life depending on your age, family, financial situation and priorities.
  • That’s why you should review your insurance coverage every year. You don’t want to find you’re underinsured in some areas or paying for a level of cover you don’t need in others.
  • You can often reduce the cost of your premium by choosing a higher excess. The excess is an amount of money you have to contribute from your own pocket towards a claim. Just make sure that you choose an excess that’s affordable for you.
  • The insurance industry is very competitive, so it pays to shop around. I’ve seen people save hundreds of dollars a year just by changing insurers.
  • A professional insurance broker can be a great resource. They can help you by comparing different companies and policies, and making sure you get the right cover at the right price. There are also lots of online insurance broking websites that can help with comparisons.
  • Do you have a partners and/or children? If so, you should consider life, disability and income protection insurance. What would happen to your family if you died or were unable to work? Would your savings or partner’s income be enough to cover your commitments? Start by talking to your superannuation fund about their insurance products.
  • Do you own a vehicle? When it comes to running a car, motorbike, boat etc., my general advice is that a vehicle is only affordable if you can afford to insure it properly. Very few people have enough personal savings to replace their vehicle or do major repairs in case of an accident, which is why Comprehensive insurance is usually recommended. Third Party Property Only insurance provides cover for other vehicles damaged by yours. This may be a good option if your vehicle is of low value and/or you can afford to replace it. Compulsory Third Party (CTP) insurance is included in your registration. It only covers bodily injuries caused to people by your vehicle.
  • Do you rent? A staggering 74 percent of renters do not have contents insurance (source: Insurance Institute of Australia). The good news is that insurance companies are recognising that the cost of premiums is pricing people out of the market. In response, they are increasingly offering renter’s insurance that can be customised to make it more affordable.
  • Do you own your home or have a mortgage? Recent natural disasters have highlighted that many home owners are underinsured. People often underestimate the cost of rebuilding their home or don’t increase their level of cover over time. Make sure that your insured sum accounts for the cost of rebuilding to a standard acceptable to you, as well as other expenses such as demolition, temporary accommodation and architectural services.
  • Are you over 30? Under the government’s Lifetime Health Cover initiative, you pay a two percent loading on top of your premium for every year you are aged over 30 and do not have private hospital cover. The idea behind the scheme is to create an affordable, high-quality hybrid health system. In addition, private heath cover gives you the option of choosing your own doctor, undergoing elective surgeries sooner, and often covers complementary therapies, all of which are important when it comes to leading a fit, happy, productive life.
  • Lastly, keep in mind that insurance doesn't cover all of life's unexpected events. If, for example, your 10-year-old fridge stops working or you need time out of the workforce to have a baby, insurance isn't going to cover those costs. That's why saving is the most important financial habit of all.

You can also read this article at Samara Magazine.

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