Insurance woes: The soaring cost of peace of mind

Insurance is quickly becoming our biggest family financial pain point. And also a keen topic of discussion over the breakfast table. Between the house and contents, car, travel, medical, and pet insurance, my wife and I are paying close to $11,000 a year to insurance companies who cover us against something that may or may not, ever happen.

To put that into perspective, I could book a five-star three-week holiday to Bali, Thailand, or Fiji with that $11,000. I can guarantee that I’d have more fun on that holiday than I get by giving it to faceless insurance companies. With inflation soaring, retired Australians on fixed incomes are having to adjust their lifestyles to match the declining value of the pension pot.

We are having to find a way to survive the largest cost-of-living increases seen in this country for the past 20 years. Last year it was estimated that you needed $545,000 in your super balance to fund a comfortable retirement. This year, the Association of Superannuation Funds of Australia, says that figure has risen to $595,000.

Global research by Natixis Investment Managers found that, rightly so, inflation is the biggest concern for retired Australians and one of the main reasons that people are deciding to stay at work a little longer than they had originally anticipated. Natixis also said that Australia was slipping down the list of top countries for global retirement security. Australia dropped two places this year to finish as the seventh best place to retire. The top six countries were Norway, Switzerland, Iceland, Ireland, Luxembourg and the Netherlands.

Some people over 60 – more and more actually – are dumping things like private health insurance and opting to take their chances in the public system just to save some money. My wife and I are financially conservative by nature. That’s what our financial planner says anyway.

So, for now, we will keep paying just in case disaster strikes or a hip replacement is needed. But we do have friends and family members who opt not to pay certain insurances and instead put money aside each month in savings to cover any unexpected costs. The fact is we haven’t needed (touch wood) to make a claim on anything other than health insurance for the past 15 years. And those health insurance claims have been for things like glasses and dental visits. Thankfully, nothing too major.

About 45 percent of Australians have private health cover. That percentage grows for the 60-plus population. The Silver Tsunami means that we are all living longer and this fact alone will increase the demand on Australia’s health system. According to Private HealthCare Australia, between now and 2050 the number of older people (65–84) will more than double and the number of very old people (85 and over) will more than quadruple, from 0.4 million today to 1.8 million in 2050.

During that period, real health spending on people aged over 65 will increase seven-fold and spending on those aged over 85 years will increase around twelve-fold. The Federal Government already pays massive subsidies to keep the cost of Private Health cover as low as possible. The Government is currently reviewing what it does with private health insurance. We eagerly await the outcome of that inquiry.

So, with an ageing population making more demands on the system, you can see why health insurance costs continue to rise. It’s the other insurances that I have questions about. The cost of those insurances have continued to climb, and climb, and climb for the past 15 years.

The renewal for our car insurance came in a few weeks back and our annual premium on a 10-year-old Mini Countryman had jumped by more than $600. I paid $64,000 for the car originally. It would now be worth about $14,000. So while the car’s value has decreased by more than 75 percent, my insurance has doubled. That doesn’t make sense to me.

The annual insurance bill this year was close to 10 percent of the current value of the car. We had been with Budget Direct for a few years, so we called to ask for an explanation. We hadn’t claimed anything. We hadn’t been involved in any accidents. We didn’t have a history of collecting speeding fines. We paid on time every month. But that didn’t matter.

Even when I told Budget Direct that I could get a much better deal elsewhere, they didn’t care. So we left. We ended up paying $200 more with the new insurance company – saving us just over $400 on what Budget Direct wanted to charge us.

There’s no loyalty in the insurance world. As a customer, you need to look for a better deal every 12 months. You can’t afford not to. Insurance companies spread their costs across all policy holders, so those that don’t claim anything end up paying more for being good customers.

On average, car insurance costs rose by 18 percent year on year, far outstripping inflation. Insurance companies say that’s because new cars cost more and replacement car parts have also risen dramatically. A rise in car thefts has also played a significant factor. If you google “how to get a better insurance deal” it says the best way to do that is to increase your excess. That means you must accept less back on any claims you make.

I think the key to getting the best deal is to shop around. Don’t be afraid to ask for a better deal and compare as many policies as you possibly can. The good news is if, like me, you are retired, then you do have time on your side to shop around.

Disclaimer: The following text is an opinion piece and should not be taken as factual information or professional advice. The views expressed in this article are solely those of the author and do not reflect the views of the platform hosting the article. The purpose of this piece is to stimulate discussion and encourage critical thinking. Readers are encouraged to conduct their own research before making any decisions based on the content of this article.