Budget Buster: The art of swallowing dead rats
Saturday, 21 July 2018
OPINION: It is an unpleasant fact of life that every now and again, you have to swallow a dead rat.
For the uninitiated: this delightful piece of Kiwi slang refers to finding yourself in a bad situation you have no choice but to accept.
Life insurance is especially likely to stick in your craw. If you live long and prosper, all those premiums you paid were for nothing. The only way to win is to die young and unexpectedly, which is what you might call a pyrrhic victory.
To make the meal even less palatable (in news that will surprise no-one) it turns out that many insurers have deliberately been putting their profits ahead of your own best interests.
READ MORE:
* What to do when the sharemarket crashes
* By age 35, you should have reached this money milestone
While you can never really win, here are five tips for making sure you gulp the rat down as gracefully as possible:
1. Question the premise
The only way to win a rigged game is not to play in the first place. If you don't have any dependents who are relying on you, there's probably no need for life insurance anyway.
2. Run the numbers
How much do you want? A million bucks? Two million? This is approaching the problem backwards. Don't get suckered into buying some arbitrary amount of coverage, because it depends entirely on your circumstances.
If you're approaching retirement, and you have two incomes, and the house is almost paid off, and all your children have flown the nest, you probably need far less than you think. If you have lots of debt and seven hungry mouths to feed and clothe, you'll need more. All the banks and insurers have calculators that factor this in, as does The Shape of Money website.
3. Join the gym
The biggest factor affecting your premiums is age, which you can't do much about. However, you also get asked all sorts of questions about your overall health and lifestyle.
To be honest, I doubt anyone is going to convert to kale smoothies and yoga just to save money on their life insurance premiums, but add this to the list of 10 million other reasons to exercise, eat healthy, and cut back on booze and fags.
4. Don't tell fibs
It would be only too easy to knock a few kilos off your weight, or say that you're a non-smoker, because everyone knows it doesn't count when you're on the turps, or you've had a stressful day, and you only ever bum them off your friends…
But it's not worth it. The Insurance Ombudsman's website is filled with cautionary tales of poor fools who had their claims declined because they fudged the truth or failed to disclose something. It doesn't matter if it was an honest mistake. If in doubt, disclose it, and especially anything that might count as a pre-existing condition.
5. Trust no-one
The Financial Markets Authority's damning report found that most banks and insurers were so eager to sell new policies that they didn't tell customers of the risks of ditching their old ones; like claims waiting periods, excluding pre-existing conditions, lost benefits. The danger is that you will only find this out when you make a claim, by which time it's too late (and you're dead).
Now, you could turn to an independent adviser or broker, but they get paid on commissions too, so they're just as incentivised to 'churn'. That doesn't mean there aren't good advisers out there, but never forget that their interests are not necessarily aligned with yours.
Footnote
Kiwi idioms don't always translate well. In less fortunate parts of the world, the practice of swallowing dead rats is generally known as 'lunch'.
As someone who has actually eaten an alarmingly non-metaphorical rat, I can tell you that if you close your eyes, focus on the big picture, and remind yourself why you're doing it, it'll go down a whole lot easier.
…OK, and BBQ sauce helps, too.
Got a burning money question? Email Budget Buster at richard.meadows@thedeepdish.org, or hit him up on Facebook. You can also find links to previous Budget Busters here.