Captain FI Financial Independence podcast – Insurance with Katherine Hayes
On board the podcast today is Katherine Hayes, to talk all about Personal Insurances (how to cover your butt!). This is something not often talked about enough in the FI/RE space, so I was really glad to have an expert on board to break down the different types of personal insurances and what to look for.
Katherine is a published author, a multi-award winning financial advisor based in Canberra who has over 20 years industry experience, a specialist in Personal insurance (Life, TPD, Trauma and Income Protection insurance), and is also the co-host of the Money Madams Podcast alongside Amber Parr. She is a business owner (Hayes&co insurance services), mum of 3 energetic boys and before she got into financial advice she was actually a croupier working onboard sailing ships in the Caribbean! So it is fair to say, Katherine knows a bit about money and insurance (especially that the house ALWAYS wins!).
Katherine has also worked as the NSW & ACT State director for the Association of Financial Advisors (AFA), as well as working her way up through four different financial advisory firms before she left her role as an employee andcreated her own business.
Katherine brings her knowledge of personal finance strategies combined with her kind approach that empowers others to lead their best Money Madams life.MoneyMadams.com
I would describe Katherine as genuine, energetic, knowledgeable and passionate. Whilst we chatted for hours, we’ve tried to keep the episode down to a manageable chunk but it is still nearly an 1 hour 40 minutes so. I was super glad to connect with Katherine and felt a genuine personal connection, and will definitely be asking her back onto the show to share some more of her expertise.
Katherine is definitely someone with the experience, knowledge and passion that means we should be paying attention to what she says.
Captain FI Podcast – Insurance with Katherine
- Check out Katherines business – Hayes&Co insurances services – http://hcis.com.au/
- Check out Katherine Hayes on Linkedin – Katherine Hayes
- Check out the podcast interview I did with Katherine and Amber on the MoneyMadams podcast episode 76 – FIRE – Financial Independence, Retire Early
Katherine – insurance
Captain fI: [00:00:00] ladies and gentlemen, this is your captain speaking. Welcome aboard the financial independence podcast.
Get a and welcome to another episode of captain fire, the financial independence podcast, where I opened the cockpit to some of the best and brightest in personal finance, as well as those who have reached or are on their way to financial independence. Before we get started, remember nothing said, here is financial advice and you should always do your own independent research before making any financial choices with that being said, I hope you enjoy the episode and learn something new
okay. Today I’m chatting to Katherine. Hey Joanne. Yeah, I’m not so bad. It’s actually quite timely that we’re [00:01:00] going to have this discussion because I have decked out my apartment with the few nice things.
So I’ve been wondering about contents insurance, perhaps. That’s a question I could ask a bit later on, but I just want to say, thanks very much for making time, welcome to the show. And I believe you’re joining us from Canberra.
Katherine: Yes. Canberra is where I’m based most of the year.
If you’re a Canberra local, four seasons is what you sign up for four very distinct seasons, it’s crazy dry hot in in the summer. And it’s freezing cold. With the meantime, personally, I would love it. If it snowed, it would make it feel more worthwhile, it has it swings in roundabouts.
So I love it.
Captain fI: I always love flying into Canberra can be a bit of a challenging approach with heavy. And especially when it’s hot, just because of the terrain. But yeah, absolutely beautiful scenery. So I’ve spent quite a bit of time in Canberra and a big fan of run over or running and cycling around Burley Griffin and doing the runs up black mountain.
Yeah, it’s a beautiful area. It’s a
Katherine: very livable [00:02:00] city.
Captain fI: Are you always been a Canberran local or did you choose to move there?
Katherine: I came from a sort of really tiny town in new south Wales and my parents moved here. Sold the bomb came here they just felt that it was time to come to a bigger city.
So Canberra was the place that they went to. And also it was a choice because it meant that we would oughta have to go to boarding school as kids or come to Canberra and then they wouldn’t have to send us to boarding school. So that was a pretty simple choice from my parents. And then I’ve leaked in Cambra.
Most of my life I’ve lived overseas twice, but Canberra has always been
Captain fI: home. Yeah, I’ll say always. Yeah I feel you on that one cause I’ve moved around a bit for work as well. And. Coming back home. It’s just been wonderful. In fact, I went to a bakery that I haven’t been to in seven years and the ladies behind the counter recognized me.
No, it wasn’t immediately. They said, oh, you’re a little bolder. Then when we recognize the last and sporting a few more wrinkles. And I said, oh, thanks very much. Give me my fund me roll and I’ll leave. But it was nice to to be back in the old neighborhoods so I can see why [00:03:00] you always wanting to come home.
So where did you live out of interest? Where did you go? Yeah,
Katherine: As where I moved overseas. So I sucked at language in high school, but I was determined to learn French. In terms of a value decision, I really wanted to learn French language. And I worked out, I could spend thousands and take forever and a day to learn French by going to Alliance for on-site classes, all that kind of stuff.
And I thought, what better way to learn it, then just to dump myself in the actual country and pick it up through intensive language collection, lessons, emotion, and the rest, and that way I get a holiday to boot. I decided I want to go live in France. I found a place that. French to you and participant international students, they didn’t teach you in English.
They taught you in French. So you learn really quickly. And so I spent six months over there. It’s 20 hours a week with a courses, and within about three months, I’m pretty fluent. And and then I use that as a base to travel around France and other parts of Europe and living as a student, it was highly affordable.
It’s ruined me for forever because now when I hit, FII that’s what I want to do. I will go to another [00:04:00] country except I probably spend 12 months there and I will pick up the language. I’ll leave as a student. So it’s all on student rights. Long-term accommodation pick up the language, the culture, know the ins and outs and come back to Australia for a bit and then go rinse and repeat and pick up another language and culture for another 12 months, somewhere else.
Captain fI: Wow. That sounds like a wonderful goal. I also holy Molly, just moving to another country to learn the language, talk about straight into the fire, so to speak, it must have been really confronting.
Katherine: It makes a lot more sense now. Something you and I have talked about often, but I’m ADHD, looking back on it, once you get diagnosed, you’re , oh, that makes so much sense because that’s impulse control.
I’m , I want to live overseas. I’m going to go do it. And I just
Captain fI: did it so awesome. Yeah. You’re a bit of a go getter. Katherine, you just more of a at.
Katherine: Yeah, pretty much. And then, the other time I moved overseas I actually worked as a crew PA in a casino. And the only reason I selected that job is I wanted to live and work overseas.
And I knew that working in [00:05:00] the casinos on the cruise ship was a great way to be paid to travel. So I did a six month contract working in the Caribbean on cruise ships as a croupier. So
Captain fI: we basically have free holidays that’s very, oh yeah. I
Katherine: don’t think I could ever do the work on the cruise ship again.
They work you to the bone for it wouldn’t even be a legal minimum wage here in Australia but I am very glad that I did it, but I would never do it again.
Captain fI: Hang on. So tell me the secret is it true? The house always wins. How do you gain the system?
Katherine: It’s only one way and it’s totally illegal and that’s
yeah, but the house always wins. I’ve seen a lot of stories from, working in the casino, some famous people getting kicked out through to. Just pull behavior by people. But most people, if you talk to them about the casino, the first thing they’ll tell you is I applied a couple of times, but I’ve always come out upfront.
Maybe you have maybe haven’t, that’s fine, but those buildings don’t get all those wages paid. And the rent paid and the light’s paid from, people coming in and looking
Captain fI: away with a, [00:06:00] yeah, exactly. Look, everyone has their big fish casino story. My best ever casino story was I went in, I think I spent a hundred dollars playing minimum beds on the relay wheel, but how good is this?
I left the casino super drunk. I was drinking my heaters I don’t know whether, I won a lot of games. I’d lost a lot of games. But either way, they kept giving me mojitos and I reckon I drank more than a hundred dollars within the heaters. So I’m going to call that a weird,
Katherine: Obviously some good.
So one of my favorite experiences, there was a bunch of guys and I think they’re out on a bucks night and they’ve lost a lot of money and they were down to, they lost a hundred bucks and they went stop it. We’re going to throw it on a roulette table. One I was dealing at and we’ll just go hardcore.
And, I can’t remember what number they throw it on, but they throw it on a single number. So if they get it the odds of 35 to one on the wheel up and lo and behold, they literally off the way up because they, and it lands on they number. So they, a hundred dollars suddenly became 36, 30 $500 plus the original a hundred.
So they were [00:07:00] walking away with nothing and suddenly walked out. We’ve, three and a half grand.
Captain fI: I wonder if the people on their way to fire, I wonder how many people would go. Okay. I’ve got a hundred grand in index funds. Throw it all on black. Either I’m going to reach five tomorrow.
I’ll start again. Geez. I’m getting anxiety. Just thinking about that.
Katherine: Yeah, same. Work in a casino is actually ruined the enjoyment for me because I just I’ve seen so many people lose money and if you’ve worked hard for your money and then I think it’s hard to just to risk it in a very quick moment like that.
Captain fI: It’s funny because we’re seeing so many people doing basically just that, but on things like cryptocurrencies and there’s record number of people gambling on essentially IPO’s and in retail investors, joining the investing market, but not really knowing what they’re doing to me, it doesn’t sound too dissimilar from just throwing it all on red.
Katherine: absolutely. And there’s superstition, [00:08:00] there’s beliefs, there’s the, she’ll be right attitude there us. Risk and reward are two very different things and it really does miss around with that psychology. So again, so I stay clear. So
Captain fI: look, I can’t think of anyone better to be on the show to talk about risk and insurance.
Now that’s your specialty, right? So Katherine, what is risk? How do we quantify it? And for those on the past, the financial interview,
Katherine: Okay. So I’m literally going to jump out straight with a dictionary style definition because you know what risk is it’s just a situation that involves exposure to danger.
And in the context of insurance, it’s an act taking out insurance, it’s an act of managing, your exposure to that danger, the harm, the loss, and that could be the loss of an object, like a vehicle or your contents, or, the personal exposure that could be like litigation. It also could be, loss of future earnings.
Some of it you can quantify, it’s really easy. If my house burned down, what would it cost to [00:09:00] replace? That’s really easy to go. What’s the liability, if that happened. Things like what happens if I can never work again and I’m faced with medical bills, that could be a little bit harder.
And that’s why people like me have a job to help people work that out. And then you’ve got things like, there are risks that you could absorb if they did happen, but it becomes a choice what I want to do or what I not want to. So it really depends on the asset or the item that’s at risk at the end of the day.
Captain fI: Okay. So trying to manage unknowns or provide a bit more certainty. Where there is uncertainty.
Katherine: Yeah, absolutely. And the whole reason that you might actually want to consider insurance is because at the end of the day, if you were to lose the asset and that’s unacceptable to you, that’s why you consider insurance at the end of the day is just transferring the risk for you to somebody else.
You’re actually asking somebody else to take on the risk and you pay them a premium for that. If it doesn’t happen, they get the money. But if it does, they’ve got all the risks. So insurance is literally nothing more than transference of risk.
Captain fI: Why would [00:10:00] somebody take on your risk then?
Katherine: It’s the concept of pooling risk?
So for example, if you were to come to me and say, Hey, Katherine, if I could never ever work again, do you promise to pay me my wage until age 65? I’d be like, no. If I had actuarial data behind that, and then there was, 10,000 people that came to me with that same problem. And I has systems in place to assist that and worked out the law of averages.
I could probably make money out of that. It’s like a lotto. I don’t know. People think of a lot of ways in terms of being a benefit, but at the end of the day, everybody contributes and there’s a winner somewhere. So everybody likes to know that there’s a possibility that if it was needed when it comes to insurance unlike the lotto, there’s no certain.
But with insurance if this , does happen to you, you will get a payout. So you’ve got that guarantee there. So I think that’s really important because there are literally some risks that you can not afford to take on yourself. A great example is let’s think about cause if you drive a, this is one of my cyber is costly.
These on forums all the time. I see parents going, I’ve got a 17 year [00:11:00] old, they driving a $3,000 bomb and who’s the best person to go and get comprehensive car insurance. My first go-to was thinking, why would you Baba? Because the insurance that a pay plan to drive, it will pay or learn a driver is probably worth more than the car that they’re actually driving.
So the risk, if you just have the money one years with a premium maybe two years with a premium set aside in a bank account, you can manage that risk. You grew in China. And as long as you not crash that power in a year or two, then your head. Whereas if that person is driving, say, $60,000 car, and they’ve taken out a loan for that.
If they lost that car, cause they hit a kangaroo, got stolen. That would be a huge detriment. So really for me, I look at people like that and I go if you’ve got a really cheap car, why would you bother with comprehensive car insurance? But it would still make sense to say, have third party insurance, because who knows what you’re going to hit.
Could lose control and plow into the corner of a building. I know someone who’s done that and we’re talking like $800,000 worth of damages [00:12:00] or more, someone who hits a Mercedes or something like that, that risk is harder to quantify, third party insurance is pretty cheap.
So that’s an easy risk to cover off on. But yeah, I still find it amazing. The amount of parents were like, yeah, my kid has a cheap car and I need comprehensive cup. I’m like, I don’t get it. The risk reward ratio is not there.
Captain fI: It looks so that’s exactly the conclusion. I came to with my personal car.
drive a car it’s pretty old. To me it’s wonderful. I still love it. I take really good care of it. In fact, my headlight broke the other day and I was in the car park at Repco replacing the light bulb. I just love it and I can keep it running. But yeah, I looked at getting comprehensive insurance for it and they want to half the cost value every year or something.
. And I was like, no. And I ended up getting a third party because I really didn’t want to rear-end a Porsche because where I leave in Adelaide, there seems to be a lot of sports cars and has the rallies around it too. I thought I want a decline in the car park. So I just paid 200 bucks a year the third party.
And for [00:13:00] me that seems to be quite a reasonable compromise and yeah, because
Katherine: you’ve kept a potential unknown and unlimited almost risk in a sense.
Captain fI: Yeah. And I joked about it at the start when we started talking, is that, no, I don’t have home and contents insurance because my
Katherine: oh, you rent, so you don’t need a home insurance, but
Captain fI: yeah, actually, no, that’s a really good point.
I am going to need your home insurance for this investment property. It’s currently being built, but yeah, I don’t have contents insurance because all of my things costs less than $10,000. And I tried to have this and it’s a weird tick or I was like, I need my possessions to be less than 1% of my net worth.
And so I’d have all secondhand stuff, but now I’ve moved into a bigger apartment. I’m trying to have it more of a lifestyle. And I’ve bought a big TV and I dunno, it feels very on fire, but anyway, I’m doing it. And now I’m like, oh, gee, maybe do I need to get. Contents insurance. So that sounded like the next thing that I’m going to be looking at, and maybe I can pick your brain as to whether you think it’s worth it or not.
[00:14:00] But similar with the car, I thought look, I can just buy another car if I crashed mine out of, the dividend stream the business income or my emergency plan. So I thought, yeah, there’s not really a huge need there. And my philosophy has been to only insure against things that were going to devastate me financially
Katherine: you can’t financially recover from
they’re the things that are important
Captain fI: yeah. And I guess I have to point out as well. For me, I’m a 30 year old single guy, I feel like good health. I don’t have any dependence.
And it was actually only recently speak to yourself. I realized how important it is. And so I wanted to try and focus a little bit more , because I think especially parents with young families or, potentially they’re looking after their parents and then we’ve got a lot of dependents.
I think maybe it’s something really that needs to be looked at.
Katherine: At the very least people need to consider it. One of the things that really breaks my heart is when something, cause I do pro bono work as well. And what really breaks my heart is when someone comes to me and [00:15:00] goes, I didn’t even know that this was an option.
I did not know he could get insurance for this. Why didn’t someone tell me? And I don’t want to be the person that was there. He didn’t tell them. So I’m a really big believer in educating people and explaining, look, these are your options. What’s important to you to cover. And if you were to cover this is what it would cost.
Then people can decide on that trade-off risk reward, conversation themselves, and they’re going, you know what if this happens and I’ve decided to only partly type of those risks or decided not to cover it all, then at least they can kick themselves and go, I did the wrong thing, but at least it’s not a case of the going.
If only I had known, if you’ve known and you’ve made a decision, at least you’ve made an educated choice, but I think people should always be given the opportunity to make the choice for themselves.
Captain fI: Yeah. I’ve heard someone say, somewhere they’re like our insurance only thing you don’t need until you do.
Katherine: yeah, it’s like an umbrella. It would want to take. I guess it depends on where you live but. In-camera it doesn’t rain very much. And it’s just one of those things, like an umbrella or something come up, pull that once a year I get daily Ryan’s or at least never when it’s inconvenient.
So it’s one [00:16:00] of those things carrying it around every day is a huge pain in the ass. If it was a torrential rain and I’ve got to get somewhere outside and someone was, selling us tandem umbrellas, I’d be like either in care, what that cost, give it to me, I would really want it.
And that’s obviously a bit of a very simple analogy, but it only becomes valuable when the need is there. And at that point, especially when it comes to insurance at that point, it’s too late. You have to be ready before, the unexpected happens.
Captain fI: So what kind of insurance are there?
I think everyone understands car insurance and home and contents. I think most people probably understand that. What other
Katherine: consequences? Oh there is a zillion insurances out there. You’ve also got your things like your medical insurances, you’ve got your professional legal insurances, that sort of stuff.
What I specialize in is the personal insurances. So that broadly falls into four key areas. You’ve got your life insurance, which pretty straightforward if you die or you’re terminally ill, you get your pay up TBD, which most people have that in conjunction with laughing, they SUPA. And that stands for total and permanent disablement.
That’s the insurance that [00:17:00] it’s only going to pay if you will never, ever work. Then the two other insurances are income protection, which most people are familiar with. That’s security of cashflow. And then the last one, which is the insurance that people have the least off, but it’s actually my favorite and that’s trauma insurance, which also gets called critical illness cover.
And that’s got nothing to do with your ability to work. It actually pays out if you get diagnosed with an event. So for example, cancer, heart attack stroke. They don’t care if you’re working or not. If you get diagnosed, do you get a lump sum payment to use as UC for it?
Captain fI: Okay. Okay. So that sounds like a big bag there.
All right. Let’s break it down. Let’s start with one. Okay, so
So let’s say you’re most a client and I was coming to you and I’m like, Hey Katherine I’ve got third party insurance on my car.
I don’t have any contents insurance, my home. Yeah, the insurance is, do I need,
Katherine: Legally, first thing I’d have to tell you is I can’t talk to you about those commodity license that spoke to you about a specific category. So yeah. You can have general conversations about yep. What do you have in place, but if I was , face-to-face with a client, I [00:18:00] can actually only really talk about the personally insurance and stuff.
If they’ve got private health insurance or not, I can actually, walk them say and say, okay because you don’t have these, I’m guessing, you’re paying the Medicare levy surcharge, for example. And if I realize that there’s a need for that, then I’ll typically refer people on to other places where they can get help with that.
But yeah, terms of that private health insurance, I do have a few opinions on that side of things. It does get to a point and a lot of people think that private health insurance is there to save them money. I actually think that’s the biggest light hole ever. Because the biggest thing that will ever save you money is just going through our public system.
It’s really inexpensive, but it does limit you to the options that are only available in our public system. And you may want options outside of that. It also means that you have to wait on the leisure of the public system. Private hospital cover is really about two things. It’s about not having to pay the Medicare levy surcharge which will be paid if you’re earning more than a certain amount.
And the other aspect, it gets you access to treatments. Once you have private hospital [00:19:00] insurance, the only way it saves you money is of course, if you’ve got a base level of cover, you have huge out of pocket costs. If you’ve got the top level cover, then obviously you can have much lower out of pocket costs, but it’s compared to the public system.
It will still be more expensive than going public. Yeah.
Captain fI: So Medicare is generally pretty good for everyone, but for some people who want more convenience or luxury, that’s where the, yeah.
Katherine: And have private hospital cover myself one because I don’t want to pay the Medicare levy surcharge.
But also because if I’m in pain and I need surgery, I don’t want someone to tell me to wait. 12 months or 24 months, I want treatment fast. So for me, it’s about my comfort levels more than anything else. I think people need to be, they really need to understand what is it and what does it cover them for?
I think that’s a really important thing.
Captain fI: Yeah. So my family, we did grow up below the poverty line, so private health was never an option for us. And yeah, we have had some pretty serious medical [00:20:00] emergencies any witnesses in the family. we’ve gone through the public system, Medicare and I’ve been super super happy with the level of care that everyone’s had.
For my job, I actually had private health through my work and I had a couple of procedures, like when my wisdom teeth out. And I know a rhinoplasty cause I was getting nose bleeds from boxing and and that was done through the private system, which was really quick I guess much quicker than what the rest of my family had through Medicare.
Yeah. Interesting. Okay. So it’s something that people are going to have to weigh up the pros and cons.
Katherine: Yeah. And something that I find interesting too is sometimes I come across people who let’s say, they’re in the early thirties and they start to going, oh . If I don’t take this out when I do take out the private hospital cover, I’m going to get that 2% lifetime health floating.
So they may decide to think, you know what I don’t have to worry about it. But one thing that I do like to remind people is if you’re in your early thirties or mid thirties and you think I don’t need it right now, because I’m not getting hit with Medicare levy surcharge, you’re also betting that your [00:21:00] income’s never going to go up.
If you’re hoping, I would think most people want to earn more as a, they get skilled up and time goes on this. It’ll probably get to a point where at some point in your future, you are going to be in the terrible. Where you’re earning enough that you are having to be forced to pay Medicare levy surcharge.
And let’s say you delay that decision until your 50. Then you’re going to have a 40% Medicare levy surcharge that you’ll have to pay for 10 years to get rid of that. So if you think you’re going to need it in the future, because you pay 1 42, you’ve always got that consideration of, do I take it now before I technically have to take it out to avoid , that hit down the track.
So that’s something that people need to think about too.
Captain fI: I didn’t realize it was that much.
Katherine: Yeah. It was 2% per year that you delay taking it out. So if you take it out, when you’re 50 you basically delayed taking it out 20 years. So 20 years, times 2%, 40% later. Holy moly. Yeah. And , you pay the learning for 10 years before it disappears.
Captain fI: would going to an insurance broker or an accountant, [00:22:00] how would people figure out or do they just have to do the past themselves at home? I think there’s
Katherine: a lot of online tools which will help people. And there are so many comparison websites, but if someone was to be looking at.
Private health insurance. I think the best way to go is to go to the government website. You’ve got those whole, isolate compare the markets then are actually compare to market. Oh yeah. And they’ll put at the top of the list where the pays of the most. But if you go to the it’s private health.gov.edu, so obviously that.gov address gives you a good indication and the great thing about those sites is they actually compare closed funds.
So if you have the ability to get access to defense health, for example, things that not necessarily everyone can access, they’ll also include those in the comparison. So I’m fortunate that I do have access to a post fund that you have to work for a certain entity or being related to someone who does.
So I’ve got access to a program like a health fund that most people can’t. And they have a rate of 97% profits return to members. So I love my health on there. They’re really good. But those kinds of sites [00:23:00] really help you, make accurate comparisons without a bias from the person who’s facilitating
Captain fI: it.
Yeah, of course that independent stuff is super important. Okay, cool. I will make sure to include a link to that in the show notes. So anyone who’s listening can jump onto the blog and can go and compare their options. it sounds like some of those closed funds might be the way to go as well.
Not for profit. That’s generally a good idea, right?
Katherine: The mutual funds.
Captain fI: Yeah. Okay. So that’s health insurance, . Okay. Briefly, I’ll just say my experience on our car insurance, and this could be wrong. So please correct me. What I have personally chosen to do. I’ve just got third-party insurance on my car.
My car is worth less than five grand. I cranked my premium. Sorry. I put that up as high as I could go to get by. Premiums down and I also ticked off all the extras, like brewed side of CS. I don’t need any of that or a funny story about that. I stopped my roadside [00:24:00] assist and then I ran out of petrol in a regional new south Wales town
Katherine: did the same thing and then had a flat
Captain fI: battery.
I couldn’t believe it holy crap. I’m literally international transport pilot. I fly around the world. Fuel management is my job. And I literally ran into my car out of fuel. It was because it was like $2 20 at a pump. And I was like I refuse to pay that. I’m going to go to the next town where it’s a dollar 50 and I, no, I.
Anyway. So there was a perfect comeuppance.
Katherine: But that’s a risky thing. Control, listen, like the next time.
Captain fI: But so in general, that’s what I do with my car insurance crank the excess up try and get the premiums lower try and give them as much detail as possible. I call them every year and haggle, and I pretend I’m going to switch.
And I’m , oh, I’m going to, this other place has underquoted you. And maybe I’m a little creative when I tell them what they can put the coins where and I usually try and get them to knock it down. So then those are my tips for getting cheap [00:25:00] car insurance. I dunno, Katherine, am I on the right track here?
Should not doing that or,
Katherine: yeah. I like what you’ve done that you’ve actually considered whether you even needed the comprehensive car insurance, yeah, that’s awesome. I stumbled upon that strategy, I think because I drove a motorbike at one stage and having my ills on a motorbike, I think my bike was worth about four grand and the premiums were like $2,500, the comprehensive.
And I’m like, that’s stupid. I could just ride off the bike. And within a year I get another one, same for us, and but I didn’t think I was going to ride off my bike and I didn’t. So I just looked at it as a waste of money. So I just started the whole third party comprehensive. So because at the end of the day, if I lost that asset, it would be inconvenient, but financially devastating, no.
Captain fI: Interesting. I had the same with my bike. I just had third party on , I used to love riding and I figured, SuperSport 600. If I crashed this thing, I was like, I probably am not going to want to ride anymore.
Katherine: I think you crash at the, probably the biggest risk is what’s happened to you, not the buyer
Captain fI: public service announcement. Make sure it’s always registered because [00:26:00] when you register your car, you pay third party. That’s right. And that’s what it’s separate from the property stuff. So yeah. So yeah, don’t ever drive it on registered vehicles.
Katherine: tip for my case, I came across, there was somebody who was driving an unregistered car and he was actually hit by a motorcycle who made an illegal move on the road.
But because the car was unregistered, technically he wasn’t supposed to be on the road. So therefore he was at fault. So he kept the small claims court liability, which was significant. So register your vehicles.
Captain fI: Absolutely. And look, I’m just going to go out here and have a little public confession.
All right. I had my registration paid in monthly installments. Yeah. And there was some expensive, it was some kind of, there was some kind of backup, right? So previously, you can choose to pay your red show [00:27:00] like
Katherine: weekly, monthly,
Captain fI: annually. And so I used to do annually, but then it was annoying trying to manage my cash flows.
I thought, you know what, let’s break it down into monthly. Just make it a bit easier to manage my budget. Anyway, something happened and I just didn’t check. And the payment hadn’t gone through to motor edge and my wife drove an unregistered car and I went through a camera, just a, just a normal red light camera.
I didn’t, it wasn’t a red layer. I wasn’t speeding or anything. Anyway, it just scans you another plate. And I copped a fine, and it was in the thousands for 2000 or something. And I was horrified and I was so ashamed of myself and I couldn’t believe yeah, if I hadn’t been in an accident, I was completely unprotected from that liability, from that medical aspect.
now manage my registrations annually, and I have noted my diary and I have an alarm on my calendar pay for a copy of it as well. [00:28:00] I’ve never, ever going to. To pay it ever again. So I just wanted to fix my budget. I just increased my emergency fund or my sinking funds a little bit higher.
And then that way, when it comes around to pay the rent or pay it and yeah, so learn from my mistake, guys don’t ever do that. Yup. Okay. So that’s car. Okay. Contents, insurance, so what is contents insurance and is it even worth bothering with,
Katherine: once again, it comes down to what you have and whether it’s an inconvenient or not for you.
I think it also depends on the area that you live into. I have never experienced a break-in, but at one stage I did leave a bit in a suburb where the street that I did live in there was constant break-ins. And so the loss of property was a very real prospect. And if you can’t handle that loss of property then you insure it and that’s what you choose to pay.
So I think the best thing is to do you go get a quote, you work it out, what is the risk? What would it cost to replace this? And if you go, it’s an unacceptable risk to me, if this happens, then [00:29:00] you take your insurance. If you look at that and go, I cannot bear the risk of this. Especially to getting, so you take that interest, but if you’re prepared to absolve it, you’ve got the capital to replace it.
Then there’s some things in your house or things that are nice to have someone need to have. So you manage it accordingly. I am a really big fan of Facebook marketplace for finishing a house. I have been really patient and scored some massive bargains over the years and it does wonders for any budget.
But I’ve learned that you can pretty much deck out a home pretty decently for about 10 grand. If you’re prepared to do second hand and it may mean that your furniture may not match from room to room, but if you’re patient, you can manage, you’ll find pieces over the time.
So yeah, I actually tried to reduce my contents insurance with my insurance at my last renewal. I’m actually due for another one. And that actually wouldn’t let me reduce it any further. They’re like no. We don’t believe you could actually reduce this any further. So I’m like fine, whatever.
I’ll just suck it up and pay it. So I did because I have a house, I’ve got a four bedroom house and it’s full of an entire house [00:30:00] worth of stuff. Tech devices, kids, bedroom furniture, the whole kitten caboodle. For me. That one is probably more of that convenience.
I laid a pretty time for lifestyle, so I don’t want the time of having to source an entire household with furniture. I would want the convenience that it checked being paid out. And then I would just probably even pay someone to refinish my house because I wouldn’t have the time. So yeah. So money is one thing.
Time is another. Okay.
Captain fI: So it’s almost a similar discussion before versus the Medicare and the private health insurance. It becomes more of a convenience and a time aspect and you feel pain to get a bit of your time back. Look, I’d love that you’re into marketplace and Gumtree as well. When I moved to Sydney, , it was Emilia was only a one bedroom apartment, but I finished under a thousand dollars.
And a lot of our staff actually got for free, , how’s this for story, got a coffee table from the side of the road. And I cleaned it up and everything. And before I left Sydney, I sold it for $200 and I was just like, oh yeah. So pretty much [00:31:00] I did the same thing and I’ve got a lot of my stuff secondhand here.
So don’t know Katherine, I would say my total physical possessions, including my car and everything I think it would be under $20,000. I would say the apartment itself would be maybe 10 to 15. What would contents insurance cost on something like that?
Katherine: It really does vary, but I’m trying to think back when I had a contents only policy without the house, I probably wouldn’t have last time I owned an investment property and I remember the advice being the contents needed to cover things like the carpet, the curtains, some appliances, and obviously any other contents that you had in there which was minimal.
And I think the premium I paid for something like that. Investment property was , we’re talking maybe 200 bucks a year. So that was on an investment property. And on top of that, able to tax deductible because it was an investment property. So I was like, no brainer. So I just did it.
But because of now, the biggest risk as far as insurance side is more than my house burned down because the house is way more valuable than the contents aspect. So I believe that’s probably the [00:32:00] part that adds the most of my
Captain fI: premiums. Okay. So if you don’t mind me asking how much is the combined now with the house?
Katherine: As in the premiums? So my last renewal, yeah. I think I was paying somewhere in the vicinity of about 800 bucks a year. And again, big tip if you’re looking at a lot of people think, oh, I need to insure my house for whatever I paid for it. You can’t insure land. If your house burns down to the ground, yeah.
He might need to spend 20 to 40 grand on demolition and removal, but the land is still there. It’s only the house you need to ensure. And the costs of associated with clearing, rebel and whatnot. So that’s something that people should take into campus. Some people I’ve seen people made mistake, oh, I bought for $900,000.
I need buildings home insurance and 500,000. I’m like, no, it doesn’t work like that because you still own the land at the end of the day.
Captain fI: Ah, so if people are trying to get a really good deal for home and contents insurance is there a place
Katherine: a lot of the, a lot of the insurers will actually have their own things, which say, how many bedrooms, what year was it built?
Is it double brick? Is it [00:33:00] brick veneer? Is it, concrete tiles? Is it terracotta tiles? Is it a collarbone roof? I’ll give you an estimate what they think it would cost. But for me, one of the things I go off is I go off my rates. Notice I look at, what is my house worth on the market?
And I had to duck the land value from my rights notice and then I’ll add a buffer 10% and some demolition costs, sunlight. That’s what my house is worth.
Captain fI: All right. So I’m going to get a napkin, math, you can figure it out in an afternoon.
Katherine: Yeah. Yeah, exactly. And what happens if the building costs are excessive at that point in time?
I’m like, that’s great. Then I’ll have the money to demolish the house if it burns down. And I will still own the land and I will sell the land at auction to the developer or somebody else that’s interested in between what I insured the hospital and the rebel clothes. And I get PatFlynn.
I can go buy somewhere. That was equivalent to what I owned.
Captain fI: Ah, okay. One way to rest easy at night. Okay. All right. Great. Okay. So I’m trying to think through the list of what we talked about before. So then there was the health insurance we talked about the government. [00:34:00]
Katherine: Yeah. And then there’s the personal insurance and that sort of stuff.
Yeah, that’s my jam. That’s my nine to five.
Captain fI: Okay, awesome. So we’ve been leading up to this part, so this is the good bit. Okay. So there was income protection, insurance, life insurance should be good death insurance, shouldn’t it like
Katherine: it’s in some circles, what’s really confusing is life insurance refers to all of the personal insurances.
It’s also a specific type of insurance as well. So it’s a life insurance industry, life insurance market. But it’s also a type of insurance in its own. So just to make things confusing,
Captain fI: where should we start on this one?
Katherine: Gosh. There is so much to this, but I think at the end of the day most people can understand life insurance, right?
It’s pretty straightforward. Because it’s so black and white, when you get paid, you’re either dying or you’re not right. Most people will have it inside their super. And what I would say is probably the biggest mistake people make when it comes to sorting out their life insurance specifically, is they one, they do nothing and they go, yeah, whatever I got in super is [00:35:00] enough or too, they make the mistake.
If they’ve got dependents of thinking, as long as my spouse is mortgage free or has a home to live in, that’d be fine, which they’re not, they’re usually not fine. A perfect example is let’s say, you’re the average employee, male employee female, or, whatever gendered, couple combination you want to go over.
But you’re working to learn, earn an income because you have to, most people don’t spend a hundred percent of their wage on mortgage repayments. So if you’re looking at someone and they’ve got, it depends on where you live, what a normal mortgages, but let’s say someone’s earning three grand, a fortnight and the mortgage repayments are 1500 a fortnight.
If you get rid of that mortgage and you think that’s all I need to help my spouses. Yeah. It’ll help you get rid of the mortgage, those fortnightly mortgage repayments, they stopped. If you’re earning more than what you’re putting on your mortgage, your family still has to deal with the income that’s just disappeared.
And it’s pretty rare that what somebody brings in they’re using entirely on themselves. It’s usually going to [00:36:00] supporting things more on themselves, like spouse, kids, that kind of stuff. And it’s that agile thing, right? Two people can live as cheaply as one, just because some person doesn’t mean the rights have the electricity more than half of what it used to just, it’s not going to have, if you go on holidays and you’re a single person, you’ve got single supplements, it’s socks.
So I liked doesn’t get that much shape of being single. So a really big consideration is going okay if I die, yes, you could pay off the mortgage, make sure take care of spouse, but it goes way beyond that. And that’s one of the things I take people through. I say, okay what about funeral expenses?
If you’re terminally ill, do you want to sit around and do things as you always have? Or do you want to go out and live life up a bit and make some memories and, what’s it going to cost to do that? If you’ve got things like people are depending on your income, how long do we need to replace it?
And how long should we replace it for? I know a really big thing is I work with a lot of parents too. And usually when I say, okay, you’re dead. I actually know an advisor who literally puts a sheet over them, like a white, I think that’s a bit extreme. But you’re going [00:37:00] this.
Person’s not here. It’s now you it’s your kids. After any initial time of work, are you happy to go back to being a full-time, are you happy to work full time knowing that, it’s just you and the kids now. And most people are like, no, and some people go, I love my job.
I just need to pay for extra childcare. Because now we’ve lost that extra parent in the household and other people will say, you know what? I want to beat my with my kids full time until they start primary school. And then after that, I’ll only work school hours. Life insurance is about giving you choices.
It’s giving you dignity because what’s really hard is when someone passes away, I swear you spend three to four months just on admin and people throw themselves up because when you die, you don’t get out of tax returns. You tend to get out of legal responsibilities. It’s just more of them, except it’s somebody else’s problem.
So it’s really good to have a will and life insurance takes the financial pressure off. And and just gives people time to grieve after they’ve dealt with all the bull crap that they have to deal with on an admin and legal aspect.
Captain fI: I never considered that. Yeah, [00:38:00] your spouse died. We still having to submit their tax return.
Katherine: There’s so they have, you have a date of death tax return. And then so that kind of covers the beginning of the financial year up to the date that they died. And then there’s an estate tax return, which isn’t tax return for whatever they’ve owned that’s without them up until the point where you actually finalize the estate.
And then that typically means accounting advice, legal advice, so you can see the professional advice bills start flowing in.
Captain fI: It’s definitely not as simple as with a car, you just get third party. It’s this is actually there’s so many hidden costs, expensive
Katherine: and time consuming.
Yeah. Yeah. I learned that pretty early because I actually worked for a financial advisor and he was the executor of, I think it was his uncle’s estate and as a paraplanner. So that’s someone who works on strategies for advice. And he was like, this is your problem. Basically had to administer his uncles state.
And as a full-time job it took me about three months to sort through everything like open road magazines for NMA and the stress, it can cause a family [00:39:00] seeing something like that come in the mail, junk mail addressed to an individual and then telling them, stop sending this.
And you have to get certified death certificates and sending to membership organizations and all these other places to stop them sending stuff. Yeah.
Captain fI: So yeah, you definitely don’t want to be having to be working and doing that at home. And if
Katherine: you’re grieving too so someone I wasn’t even emotionally attached to.
If you’re having to deal with that and it’s, your spouse or your child or your parent that’s
Captain fI: hard. Wow. So how do you figure out how much life or death insurance is?
Katherine: Yeah. That’s why I have a job. I have a process that I take people through and you have to be able to quantify the risk of working out.
Do I want to be more people? I want my family to be mortgage free. That’s easy. It’s one of those scenarios where it’s, you don’t know what you don’t know. And I really hight the super fund websites, which calculate this for you because they don’t get it. They don’t understand the real-world implication of what happens after someone dies.
And they’re not looking at these situations clearly that don’t take into account people’s choices and things like that. So I think I would say suggest listen to the summer [00:40:00] stuff. I just mentioned there is ideas because the biggest thing I get from after I talk to people I hadn’t even thought about this.
I hadn’t considered that element because unless you’ve actually been with someone who’s been through a terminal diagnosis or helped a family and seeing the consequences, not only in the immediate time, but the years afterwards and the regrets that they have, then you start to realize what choices that they would have wanted for their dignity.
And, the hardest thing for me is seeing a parent who might’ve been part-time and then after their spouse, the kids have lost one parent to death and then they lose the other parent to work because that person goes, I can’t afford not to now go full-time. So the kids have almost lost two parents in a way that hurts.
And the guilt that the parent goes through in their struggles is yeah it’s not a nice thing to see someone go through it, especially when it’s avoidable and life insurance is cheap. It’s so cheap. It’s such an easy problem to fix. Yeah.
Captain fI: Okay. So
it’s definitely worth seeing a professional, so actually
Katherine: help you [00:41:00] look for your choices. And like I said, I’m really big on education because if someone comes back and says, you know what, for that price yep. It’s worth it. We can do it. Great. Exactly what outcomes you’ve got to be able to use.
Something happens. But if you turn around and go, you know what, I’m okay. I really want about 80% of these outcomes and that will get me a lower premium than great. And if something happens, you go, you know what? It would have been nice to have those things, but I’m okay that I didn’t have those things because I made that choice.
Like I said, it’s that thing of going, I wish I had known and the only way to do it is before it happens. Not
Captain fI: after. Yeah. So in the fire community, obviously a lot of people are trying to build passive income that doesn’t necessarily require working in a full or part-time. Some people do go to the barista fire route and supplement their own, their cost of living with part-time work.
For those people who, maybe they have got a paid off house or they have got shares, dementias, various other income producing investments. Does that [00:42:00] influence how much life or death insurance they
Katherine: need? Yeah, a hundred percent. A hundred percent. Because once again, like I said, risk is transferring a loss that you aren’t prepared to take on you.
So perfect example is income protection. Most people go to work because they want the money. Even if they love the job, they still need the paycheck. And the aim is eventually we all want to get to financial independence. And for most people that doesn’t actually happen until I hit retirement.
And even then some people struggle. I’m one of those people, I have no intention of waiting until, 65 to retire. My goal is retiring 10 years. At least having the option to at that point work is optional and I’ve read heaps of studies that say that I’m pretty passionate about.
So I’m probably going to work more than 10 years, but I won’t be doing it because of money. I’ll be doing it because it brings me purpose and value. But up until that point, I need my paycheck. If it stopped tomorrow, I would have problems. Like I wouldn’t have what I want out of life financially.
So for me, I’ve used, I have income protection in place and I also love income protection because. [00:43:00] what people think of is I think, a couple of things I don’t need it because, I’ve got covered my super word to the wise, cover through super income protection, particularly it’s full of legal loopholes.
It’s really dangerous. And for most people it stops after about a period of two years. And unless you’re going to hit, if I, in two years, then you probably need some sort of cashflow coming in after that point. Now, once we hit fully passive income and your income makes more than your expensive, so you actually don’t need income protection because your income is not dependent upon your ability to work, but while it is dependent upon your ability to have a work, it’s an asset worth protecting, for an example, and I’m just gonna use rounded numbers.
Let’s say you’re 30 years old and, Your earning. $80,000 a year. So that means if you’ve got 30 more years in the workforce, that’s what, 2.4 million that you earned before you hit age 60 and that’s before inflation CPR your pay rises from upskilling and all that kind of stuff.
So most people, [00:44:00] the biggest asset they own when they’re young is their ability to pull in money.
Captain fI: Capital. Yeah. Yeah.
Katherine: Yeah. So you are your biggest asset because as most people, if you ask them, what’s your most valuable asset, they’ll go, oh, it’s my house. And you usually got a mortgage attached to it.
So there’s limited equity, or maybe they say my super, but usually it’s what they’re going to earn between now and retirement, because they are business. They are their ability to bring in money. That’s a huge asset. If you have a business that pulls in passive income, that’s valuable, right?
You are the same. You are the golden goose. Now for example, most people will insure a car or a house. These things don’t make money. You don’t want to see them lost. But whenever you pay those premiums, unless it’s an investment property, your car, you’re having contents, you don’t get a tax deduction for that income protection.
It protects by far your most valuable. And you get a tax deduction, how good is that? So I always find it really confusing when people go, oh no, I couldn’t bear the loss of my house. How many people do you know that you can talk to who have gone bankrupt [00:45:00] or something because they lost a house because of burnt down or something like that.
By far, the biggest reason for banks for closing on a home is financial hardship from loss of income because people got sick and they lost their ability to work. It’s the number one reasons people lose their homes because of sickness injury and losing money. So it’s if you’re going to insure a house because you can’t be at a loss of it.
If you hit financial hardship, you lose, you’re really worried, but you’re probably gonna lose your house and way, way more than that too. So it’s something worth protecting.
Captain fI: Okay. And so you mentioned earlier that for one, sometimes they’re a bit lackluster.
Katherine: Yeah. Yeah. So there’s a couple of sections of that.
So there’s a section of the corporations act a is section 1 0 9 and they want to know, Hey, I think it is. And what it says would, particularly when it comes to income protection, if you hone it a hundred percent through super the law states that they can only release to you what you were earning at the time of the incident, the type of client.
So now if you were in your job going to work nine to five, that might be okay. If your income is exactly what you were insured.[00:46:00] On the policy. That’s great. But if you’re insured for less than what you were earning or the reverse, you may have had a great amount of insurance, but in the 12 months later, it became your own list.
They’re to pay you the less off of those two amounts. But the big risky happens to people who let’s say, for example, they have had an illness which has triggered lots of time off work, or they’re a parent who’s had parental leave and they’ve had Tomahawk and they’ve just returned to the workforce or there’ve been retraining or they’ve been traveling.
And the taking time off, if you look at the 12 months of your claim and it could be far less than what you’re currently earning at the time of the injury, but they’re looking at the last 12 months. Now this section 1 0 9, because if you are a contractor and you are in between jobs, if you’re a parent on leave, if you’re doing sabbatical or you just are employee, if you happen to be in between roles by law, if something happens to you in that timeframe, the superannuation fund can not release money to you, regardless of what you earned in the profitable months.
I is a huge risk. And I spent five [00:47:00] years specializing in looking after contractors. So that was a huge issue. And most of them didn’t realize that risk applied and it has got nothing to do with the quality of the insurance product that’s attached to the Superfund. It’s what they are forced to adhere to based on superannuation laws.
The lowest for superannuation since it came out in the early nineties have changed over 3000 times. So it’s a huge legislative risk. Now those changes have all sorts of different areas, but super is subject to massive legislative risks. Okay. That’s half the reason if I community is I don’t want to trust the two, but I want to, on my terms, it’s same with income protection inside super there’s that clause.
If you want to avoid that, you need to either own it in your own name or at least partially in your own name. And there’s lots of mechanisms that you can do that. The other thing is this term called guaranteed into your ability, right? So when super funds give you cover, they’re not looking at you as an individual.
They covering everyone on group arrangement. So what will happen is the super fund, trying to look after the interests of its [00:48:00] members will change everything on a group level. So the tender will typically only lasts for a couple of years and they’ll stay with that particular insurer and then they’ll go out and see if they can find a better deal or just simply, it’s up for renewal and the temp.
And often what we’re seeing in the last decade is the terms are continually getting worse and the prices are being hyped up massively. What does it in the last 12 months uni super did 133% price increase. Australian super, oh, I can’t remember the figures, but it was the high double digits. Hostplus income protection went up to 67% recently.
There was phenomenal increases, right? Most people don’t read the superannuation statements. So all of these changes go through it and there’s huge swings and they can change the terms to detriment. Anytime. What most people don’t know is they could go to the exact same insurance company that their Superfund is using and deal with them directly.
Now, some insurance companies won’t deal with individuals that only you have to go through an advisor, but some will, but what you can do is you can go to that insurer and go, Hey, I want life cover. I want TPD cover, et cetera, but I want to get [00:49:00] my Superfund to pay for it. I don’t want to pay for it myself.
You can do that. And the benefit of that is that because it’s a contract between you and the insured directly, it’s not on a group basis anymore. So they, by law, they cannot change the terms to your detriment. They can keep them same, will make them better and they can’t cancel on you unless you stopped paying for it.
You’ve got a grid level, the legal protection there as well. And what I’m seeing over the last couple of years, the premiums for individual tailored covers, it’s actually cheaper than the group arrangement because people have always been sold this thing of, oh yeah. Group arrangements is so much cheaper.
Usually it’s not these days, it’s not, it’s typically more expensive. So that’s something people should be aware of too. That it’s not what it used to be., so I think people really need to take a big look at that, but it doesn’t mean it doesn’t have its place. If you were going to get exclusions because you took that covet where you in get it, then default insurance that you get through.
Super. Absolutely. It has its place, but it shouldn’t be your primary option. It’s the backup option, not the first protocol.
Captain fI: Yeah. I actually had no idea that you could get income protection [00:50:00] insurance directly outside of super, wow.
Katherine: Yeah, no, there’s so much to it. I am an insurance nerd.
I’m sure. Yeah. I’ve actually been focusing on I’ve been an advisor for since the early two thousands early noughties let’s call it. But I started specializing in risk in 2008 after literally three people that I knew, the first one of them died. They were all in their early thirties and none of it.
So coming. Back when I was married, my husband, him and he’s a couple of mates were running in the camper times fun run. And I was waiting with the wife of the guy who ended up dying and, the daughter, she was about to turn one the following week and he dropped in 10 meters from the finish line.
He had a cardiac arrest. It was 29 years old. And this is not a fat smoking diabetic person trying to run a marathon. This was a fit healthy guy. He was a regular. And they didn’t have enough life insurance in place and they only have the default arrangements through SUPA. And [00:51:00] it definitely wasn’t enough. It was enough to pay the mortgage, but yet the trauma that she went through often, wasn’t a decision. I learned that pretty hardcore and I carried a lot of guilt from that because these were my friends and I didn’t want to talk insurance because it felt salesy because let’s face it. Some people looking at the idea of dealing with a financial advisor is like the idea of looking at a used car salesman.
They treated one the same. They don’t want to deal with them. And I felt that pressure and I didn’t want to be salesy. so I didn’t talk to them about it. And then in the next six months one of my friends was diagnosed with breast cancer and she was in her early thirties. And then another friend of ours who was a police officer, he was running and he had a stroke.
And so I liked two things is one running is really bad.
Captain fI: oh, and
Katherine: then number two was, these things don’t discriminate on age. Yes. They are usually older people problems, but they can happen to anyone. And I realized that , the guilt I felt was really bad. So I was like, okay, I’m not going to avoid these conversations. I’m going to have these conversations.
So I thought I’d focus. I’d maybe spend six to 12 months making [00:52:00] sure my nearest and dearest recovered that was in 2008. It’s now 2021 and I haven’t stopped. It’s become my niche. And it’s one of those things. It was important to me at the time, but the more I’ve specialized, the more I realized that intricacies and nuances, and I’m always learning.
And it just built up my passion for the industry and advocacy client outcomes is so important. And so I’m involved in working with working groups that does advocacy fit governments and regulatory bodies, trying to make sure that the sensible outcomes for consumers at the end of the day.
So yeah it’s
Captain fI: important. Yeah. Yeah, no, I get it. It’s such a powerful motivator for you. Thank you for sharing. It, must’ve been a really difficult period to go through and I can see where your passion comes from. You just want to help people, right?
Katherine: Yeah. Yeah. That’s it at the end of the day., it’s not sounds terrible, but one of the things I love about it is that when someone dies people do a lot to help initially. They bring meals around the proven phases is, this flowers lays that kind of stuff.
But after a couple of months, life goes [00:53:00] back to normal for everybody else, except the person that’s been affected and grief, isn’t something that most people are trained to deal with. And it could be the father’s day and people are like, oh , mostly has been, I don’t want to call, cause I don’t want to remind them that this passes did.
It sounds really helpful because trust me, that person knows. And having permission to be able to talk about these things and to not feel like it’s a problem to be heard is really important. So some of the things I’ve done is training on helping people with grief and I’ve learned a lot from that as well.
So yeah,, it’s just so important. And like I said, life insurance, it’s not going to change what happened, but boy, does it give people some dignity and some choices? Yeah it’s really important.
Captain fI: it sounds you probably need more than you think you need when it comes to
Katherine: You need choices is that’s what you need. You need choices. And if you choose not to do something, that’s okay. At least you made that choice. So that’s your life, that’s your income protection, you’ve got your income protection.
And actually speaking of income protection, a lot of people don’t really understand how it works. Probably the biggest risk that people saw with [00:54:00] COVID who’s tried to obtain their own covers, try to submit claims because they lost their job. Income protection is not employment insurance.
It’s your ability to work insurance. The way income protection works, it’s based on a time excess. So if you claim on, say your car, your home, your health insurance, it’s all a dollar based excess income protection is time excess. So you choose how long you want to, use your own resources, where it’s sick, leave annual leave savings.
And then after that point, that’s the waiting period you choose. If you’re still sick after that’s when you want the insurance company to kick in and take over the responsibility. Now as far as courage on income protection is literally based on the advice of your GP. So if you go to your GP and they say, look, you should not be working that they might say you should.
Stop completely. They might say, look, you need to cut down to maybe 50% of your hours. A good in quality in computational power in both scenarios. So if your. Yeah. At the end of the waiting period, you still have what pot time we’ll get. You can get part of your wage from your employment and you can get a top up [00:55:00] from the insurance company it doesn’t have to be all or nothing. And that ability to work it because it could be, cause you’ve got depression, it could be, you’ve got cancer. It could be, you’ve got an RSI problem or you’ve got glandular fever. All of those things, if you have an inability to work because of a physical or a mental reason, that’s what income protection is for.
And that’s why it’s so good because it is so broad what it covers
Captain fI: you for. Yeah. So most in the fire community, we talk about those resources initially being, say emergency fund and annual leave or long service leave. What I had previously done was I kept about three months worth of leave up my sleeve.
And rather normally I kept a very little emergency fund and I’m looking back and realizing how dumb that was. I really should have kept more cash, maybe it was. Ignorance or call the exuberance of youth, but I thought, damn, I want to get a higher rate of return than my
I sympathize interest rates are low. You just [00:56:00] wanted to do something more, right?
Captain fI: Yeah. I got that positive feedback where I had invested it and the market kept going up. So I’m like, oh, great. The stock market is my emergency fund. So I built a good portfolio of ETFs and I kind of self-insured my emergency fund.
But yeah, now I’m no longer flying full time, I’d like to maybe go back to doing some flying instructing or a little bit of casual scenic flight. Those kind of things. So I’m not, forever saying I’m not going to earn an income, but I know now I probably want to keep a bit more of an emergency fund I’m aiming to keep around 10 grand and I know that number is irrelevant to everyone because it really depends on your personal circle.
But I think the general accepted is somewhere between three to six months worth of living expenses. Yeah.
Katherine: Oh, I think it makes a heaps of sense because as far as income protection goes, most people don’t have decent buffers. So they would typically need maybe a 30 day wait, that’s the stock standard in the industry.
But if you have a 30 day, wait, like I said, the first 30 days, you’re on the hook for the whole amount after that, the insurer’s on hook, but you don’t get paid day one from the [00:57:00] insurer. They would typically pay a month in a raise. So a month, wait is really two months of no money.
But if you have the ability, have, if you’ve got three to four months worth of emergency buffer living expenses going from a 30 day net week to a 90 day, wait, we’ll drop your premiums by about 40% when it comes to protection. That is a solid saving, right? Yeah. Though, interestingly, it varies by the insurer, but typically if you go from a 90 day, wait to a two year, wait, the savings aren’t there.
You might maybe save five to 10% max from
Captain fI: 90 days. It’s
Katherine: That seems to be the sweet spot. So sometimes they come across people and they’re like, oh, but eight months of saving I’ll have. A six month waiting period and I’ve run the quotes. And the difference in premiums is like a dollar 18 per month.
And I’m like, you’ve just thrown out. If your monthly benefit is grand, that’s three months worth of benefits. It’s like you’re giving up $18,000 to save a delay. Teen.
Captain fI: I think of it that way, [00:58:00] because yeah, if you’ve got that exclusion, you’re obviously not getting paid the benefit for the period.
Katherine: Yeah. that’s just a no brainer. You’re giving up three months worth of benefits to save literally a dollar or two, so usually people having a two year wait, it doesn’t really make much financial sense. You might as well just have a 90 day. Wait.
Captain fI: Yeah. Yeah. Okay. And so that was what I thought. And so when people ask me, I said, look, I would feel comfortable with somewhere between a three to a six month emergency fund. And I guess if you had kids or, you didn’t have as much assets behind you, you probably want shorter waiting period and paths.
You want to consider a longer emergency fund.
Katherine: Yeah, it’s good. Motivation 40% saving. If you called up your, whatever other insurance provider and they went, oh yeah. As long as you’ve got emergency bed for a couple of months, you’ve your to use, drop your premiums 40% and you’d be done.
Captain fI: I think you should remember that. Your leave from work. If you have an annual leave entitlement or a long service leave, or any of that kind of stuff you could include that as part of your emergency fund. Oh,
Katherine: absolutely. And that’s one of the things that we work on in [00:59:00] terms of working out, what someone’s exposure to risk is if your income stopped tomorrow, literally, what have you got?
That’s going to plug that gap. And for most people, that’s the first thing I’m like, okay, let’s go. The thing that literally costs you, nothing. What have you got in terms of sick leave annually, long service leave? What have you got, obviously that you don’t have plans to use in the immediate future?
And then after that, it’s what savings, if he got, or what other resources can you draw? Cause it’s amazing. I’ve seen a lady who has a hundred thousand dollars just sitting in cash. And I said, oh yeah, surely we’ll be happy to draw down this. And it was like an inheritance.
And she had been unwise with spending in the past and had gotten down and it had taken her so long to get back to that amount. she couldn’t bear the idea of touching it. So we went with a 30 day waiting for it because it was emotionally traumatic for her to do that. Whereas I’ve got people who’ve, might’ve been the opposite that it was taken them five, six years to save up something as simple as $10,000.
And they’re like, yeah, I’m a happy to lose it all. I would rather use it. So you can’t assume what someone is comfortable with doing they just ask people and go, Hey, you’ve [01:00:00] got this, would you be prepared to use it? And if they say, yep, I’m like, great let’s bank on that. And that can save you some money.
So yeah, it is definitely an individual consideration. And for those in the buyer community, if you were at a point where, like I said, if your income covers your expenses, income protection is not as a necessity. You may not need it at all. I do have a couple of people here, who still choose to it because they have hit fire, but they still have aspirations for a more luxurious lifestyle and that
they could absorb it, but they don’t want to, they choose
Captain fI: not to. Yeah. Yeah. Yeah. Okay. No, that’s a fair point. The other one was the tilapia and the thing here as well. It’s I’ve thought about this myself and I’m like, okay, cool. So I’m fine. And I’m happy to get around town on my bicycle or my email.
Okay. I know I don’t have a motorcycle he wants, so I get my kids on an electrified bicycle. It goes really fast, by the way I can get it’s
Katherine: electric block as well. It’s[01:01:00]
Captain fI: Look, I got mine from marketplace as well. It’s so good. But yeah, so I heard along on those and just the thought occurred to me if I get cleaned up by a boss or something and I’m in a wheelchair and all of a sudden, maybe I need a carer to help me eat or go to the bathroom.
Katherine: So many considerations. Yeah. Yeah. So what you want to think about in this scenario is there’s a couple of moments, right? A lot of people get confused about do I even need TPD insurance if I’ve got income protection? And so the answer is it depends, but for most people, yes.
So if you think of income protection gives you cashflow, it’s not there for lump sum payments. It’s just a security, a cashflow. Your TPD is the opposite. It’s assignment. That’s, it’s also based on your ability to work, but it’s the opposite instead of being a a cashflow solution, it’s a capital injection.
So it’s full capital expenses. So the way I look at it with people is if most people, if they’ve got a mortgage, we look at their income and say, okay, once again, if we got rid of your mortgage and you didn’t have to make [01:02:00] repayment, that can be a great way to have. The loss of income, because even if you have income protection, if you can’t save at least 25%, because income protection cover 75 at the moment, anyway, it’s actually going to drop come October.
It’s an industry changes, but at the moment been for a long time, it’s been 75%. So if you can’t save 25% or more of income, then that’s a problem. So if we can get rid of someone’s mortgage or payments, that’s immediate cashflow relief and that can help plug that short form. Also I get some young people who have yet to purchase a home and, the discussion we have is if you were permanently disabled, you could never work again.
How important is it to actually own your own home? And usually people like, I want security at that point. So you need to be able to buy a home outright, but what bank has lend you money, if you’re on income protection payments, it’s going to be pretty hard, right? So we just simply say, let’s make sure that you’re out of the rental trap.
You are in some way, and then you can just pay it outright and then whatever you’ve got from income, whatever your income sources remains for [01:03:00] income, and that can cover your expenses. So that’s a big one for a lot of people. If people have consumer debts, credit cards, car loans it’s good way to get rid of that, to take some pressure off.
Otherwise it really becomes about what are the costs associated with this injury. So if you own your own home, whether it’s outright with a mortgage, chances are, if you’ve got a disability and it’s a serious one, you’re going to have to modify that home. And that can cost a lot. So it could be ramps, it could be widening all the doorways in a house.
It could be, completely knocking out a bedroom to make it a really super, just to extend the toilet in the bathroom to make it wheelchair, access their allowance. And, oh, it’s huge.
Captain fI: Yeah. We actually had to do this in our family home for my grandma. She became wheelchair bound and we did that.
We knocked out a wall made the bathroom bigger and
more expensive. My mom recently retired and we were looking at her super and paying off the mortgage and I looked at the mortgage and I’m like, mom, [01:04:00] this mortgage is higher. You are more now than you did, 20 years ago when you bought the house. And she’s oh yeah, but that’s because we have to keep paying for remodeling the house grandma.
And yeah. So I was shocked at just how expensive, that kind of stuff.
Katherine: Yeah. Yeah. So having a capital injection to make your home disability friendly. And like I said, it’s not just the ramps in the bathrooms. You might need benchtops lowered for somebody who needs to be able to prep things, always want all the lights, which low it, there is so many things that you could potentially need to change to a house.
Or if you’re, let’s say you’re, an apartment, a tiny apartment in a multi-story building, you might just go screw it. I’m just going to have to sell it and have to buy somewhere else, completely brand new. And then you’ve got your agent’s fees. You have to pay stamp duty all over again.
And you want to make sure that you can live somewhere suitable. So having a capital expenses or even, Hey, you might go, I still want to be able to drive. You can actually get paid to get cars modified so you can still drive, if you’re in a wheelchair. So there’s things that you can still do.
There’s a pretty price tag attached to it. So there’s that [01:05:00] element. And then there’s the long-term stuff. If you need long-term ongoing care, one of the biggest questions I get asked is what about the NIS? Yeah, the Endis is there. But it doesn’t cover all disabilities.
You have to be able to fit in their boxes. So I’ve got one of my clients, she had a stroke and she gets a huge amount of NDIS funding. But that’s because she needs care is 24, 700. And even though she’s married and even though they have that her husband is exhausted, he is exhausted. And then I’ve got somebody else who has complex PTSD and now they can’t drive anymore.
There’s a lot of things they can’t do, but they’re not covered under NAS for that. But therefore putting out huge amounts on Uber’s and taxis and, assistance and spouse taking time of what is loving inconvenience. So long-term care costs. If you don’t want to rely on the indice, or you’re more worried about covering the impact of something that’s, but not on their indice, a more moderate level.
Then, that could mean your spouse becoming your carer and they’ve lost potentially their income. It could be you just go, you know what, if I’ve got, for [01:06:00] example, I see a lot of women, who’ve got Ms. I like the idea of trying to maintain a household with that. They want someone else to do the Albert.
They want to clean up once or twice a week. They want someone to come to their house and chop vegetables. So then they can still meal prep, but it’s easier things like, and that all comes at a cost. So people want the ability to make my life easier and outsource a lot of services. So we include an annual budget that an insurance, like a lump sum could produce an income stream that would give them an extra revenue, stream so they could pay for things that they don’t currently have to pay for.
So TPD is about the initial shock and then managing the long-term changes that you wanna put in.
Captain fI: Wow I ahead a question, Katherine, that I was going to ask you, right? And I feel so ignorant now I’m not even going to ask it. I’m
cause I just feel so stupid. Now I was going to ask you how much is enough insurance and from everything we’ve talked about today, there’s literally no answer to that question. Yeah.
Katherine: It’s a personal value question. It really is it’s a personal value. I’ll tell you one client, I have one client who’s earning a [01:07:00] significant amount.
We’re talking combined family income from employment was approaching three quarters of a mil per year. So significant value that was brought to the family. And we had this conversation about what outcomes do you want with TPD insurance? And they said the only thing I want is to pay off the mortgage, that’s it.
And you go, and I was like what about the care costs? And he goes, honestly, if I’m TPD and I’m going to drive myself off a cliff and I was like, wow. So what’s my ethical obligations here. If you ever actually become totally disabled and don’t have to inform someone and the case, he was dead set serious.
He’s oh, we don’t want to live my life disabled. And I will take care of that. I don’t want ongoing kickoffs. I will in my life. And that was a very confronting conversation. That’s the way it was. It’s not, like I said, it’s a very personal. Very personal conversation about what outcomes you want.
Captain fI: Yeah. It’s pretty confronting for an advisor. Hey Katherine.
Katherine: Oh yeah. You have no idea. I think I had one day where I had three people who went through really traumatic events [01:08:00] and just listening to their stories. I wasn’t okay for about two weeks. I still went to work, but I couldn’t switch off my mind from those events, I needed to download with someone and yeah, like I said people talk about, to be an advisor these days, you’ve got to have a financial planning degree, so the industry has changed so much. When I first entered the industry, you could literally do a weekend course, and then you were a qualified advisor, and I’m , wow, that’s really scary. And that’s where we still were. A lot of these outlandish behaviors come from.
But this, legislation got passed ages ago and it’s all coming in. We’ve got this transition period, but to remain in the industry, you have to get a degree or you get out. I was lucky that I went above and beyond and got qualifications well, before it was mandatory. So luckily I don’t have to do that.
Because I’ve already met the criteria, but there’s a lot of people leaving industry because they can’t and actually something that I think I’d like to point out. It’s a really big misconception. And I see this on any kind of film forum, whether it’s before it’s where it’s,, anything like that.
And when people talk about seeing adviser, they’re like, oh, be careful. They’re just going to recommend you superannuation so [01:09:00] they can get a commission and stuff like that. Commission on investment, like built-in commissions on superannuation investment products hasn’t existed in ages. If you go to a, say an advisor and if, they’re set up, what would the superannuation fund?
There’s no commissions built in that doesn’t exist anymore. They may charge you a fee. And so they should, because they providing you with a service, but that’s entirely negotiable and about you finding a fit for them. But yeah those built in property sector. Wow. That’s different.
That’s a very different story, that story, but that’s not part of the regulated financial advice landscape. So yeah, so that’s something that people should be aware of and it doesn’t mean it’s just because someone’s charging you fees instead of commissions. It doesn’t guarantee that the ethical there could be a really lazy and just be giving you a one size cookie cutter fits all approach and not really considering, and just making you fit their strategy rather than what’s right for you, but that will exist in any profession.
So you need to find some of your company.
Captain fI: Yeah. I had a couple of bad experiences with advisors, but linked in with one now who’s pretty cool I’m actually glad [01:10:00] I did. Cause I was am I on the right track here?
And I just wanted to try and work out what level of risk I have with my five portfolio. Cause it’s funny, we talk about risk and I was like I’ve got these investments, they’re creating this income stream. And I’m like what is the risk that this is what all stopped and I would have to go back to work.
So that’s what I’m going through to see with them. But I would say my attitude towards advisors is changing. It sounds like from what you’re talking about, it always sounds like advisors need some kind of psychology or counseling degree as well.
Katherine: That was the point , it was going to make, is that of, there’s been a lot of arguments saying that it would actually probably be more relevant.
Obviously we need to know the legislative war and legal aspects and that’s part about education requirements, but a big part of it too is we need psychology. I think that should be more in the framework that wasn’t, I had a client call me out this morning, . Called me and said, I’m not okay.
It was actually her husband who called and I missed the call and just said, this is what’s going on. I’m not coping. And so it’s almost like the call you’d expect to be, if you’re on the other end of the coal from, 1, 300, 1, 3 lifeline talking number.
[01:11:00] And you have those conversations with people and going, okay, now this is what I can help you with in, these are the options that you’ve got but you need to go get this medical advice, but I’m here for, you see people at their worst. You get to see people’s best intentions, which is awesome because they want to take care of themselves and their families.
But when things go badly, it’s like I said, everybody else can bring meals and flowers and that kind of stuff. I get to rock up with a check. Though, I haven’t actually handed a physical check in a long time. But I do get to, rock up and say, Hey you we plan for this and when you’re ready, let’s talk.
And then it’s a conversation of going, okay we plan for this and do we still want these outcomes that we spoke about it? Cause we can, there’s no reason, if I do a strategy for someone and go, this is how much insurance you should ideally have, there’s no requirement when they get that money, they have to spend it there.
But it can also be really reassuring for them to go. I’ve got all this money and it feels a bit of a shock. And I feel guilty because I’m getting it because my spouse died. I don’t want it to take the money back, just give me my spouse back. That kind of stuff. There’s a lot of guilt from that, that they feel like they might be benefiting in somehow, but it’s [01:12:00] no, this is what we did.
And some of that, sometimes that’s just to say, let’s not make a decision for six months. Let’s just let it sit there knowing that it’s okay, maybe we’ll pay off the mortgage, but the rest of us just not do anything until you can make a decision and I’ll help you guide there.
And the dangerous thing is a lot of people will come to you once you get a payout, doesn’t matter the source. And even if it’s life insurance, a lot of people will come and should all over you. You should do this, you should do that. And so I have to say to people, look, people are going to shoot all over you.
And they just want to help take down their notes, but don’t act on it, come and discuss it with me. And, we’ll go through because people are well-meaning, it was the path to hell is paved with good intentions. So you got to sand it out with someone who’s, understands the implications
that’s something important that we do with as well. But yes, psychology is very relevant to,
Captain fI: sounds like, the job isn’t simply, a transactional. Okay. I come, I pay my whatever statement of advice, get the products. Yeah. it’s not really okay. Off you go.
It’s literally like a lifelong relationship with good advisor.
Katherine: Yeah. Yeah, absolutely. [01:13:00] And that’s the thing that comes to the boss relationships. For example, for me, because I specialize insurance, I see people and I might help them out. And it’s quite intense at the beginning, getting them help any coverage.
There’s a lot of hours involved in errand but then we might not deal with that person for a couple of years. Cause it depends where it’s, I’ve got one person who sees me every six months who really needs a high level of security, making sure everything’s okay. It just depends on the needs of the person and the changes going on their lives.
So I would generally tell people that some people will need an annual review, but most people don’t, especially when they’re young. If you have an injury or if you get a big pay rise, you’ve got an inheritance or you smashed at your mortgage and you need less cover or the opposite, you take on a bigger, more goods, you have kids and we need to make changes then.
Absolutely a review is always in order, whether there’s changes, I’m not required. That’s another thing. But if nothing is changing in your life, Tiny things do add up over time. So your own superannuation going every single year, your mortgage coming down, kids becoming less dependent. These things add up and have a cumulative effect on how much cover you actually might want to have.
So I tell [01:14:00] people, look, even if there’s no big changes, we shouldn’t leave it longer than four or five years before we catch up and have a chat, even if it’s just to go. Yep. Keep on keeping on when somebody comes to see me, I’m not someone who likes to go, oh, look, he’s the best deal this year that’s jumped the debt best deal next year.
That’s I find that’s very rarely in people’s best interests. I’m usually trying to find a deal. That’s going to fit them for a very long time because there’s this thing called It doesn’t make sense in all cases, but for a few people, little premiums means that when you take out your cover, you pay a bit more to begin with, but the insured guarantees that they only have a child.
You, the rate that applies to your age when you took it out. So I have a trauma insurance policy. I took out when I was 21, super nerdy, even at that age, even though I didn’t work in insurance and that policy, I can’t remember how much is exactly, but it’s in the high 100 thousands territory of how much trauma cover I’ve got.
That policy cost me only about 200 bucks per year. And I’m starting to enter the higher claim age range. But even when I’m 60, I still be paying the right for 21 year old. Now that doesn’t mean that they can’t change the rates. They [01:15:00] might look at 21 year old female office workers and go, oh, we think that category is a bigger risk.
So we need to dial up the premiums. But that could also just as easily turn around and dial them down too. But the key thing is that only pay the rate for 21 year old. And then I took out , income protection and other things in my mid twenties and a few other things. But once again I could not get the pricing I have on those policies right now.
You can’t get that because I’m no longer that age. So I paid more initially, but it’s absolutely paid off. And now I’m at a point where I have actually a stupid amount of trauma insurance. Trauma insurance, it pays out undiagnosis and the biggest one is cancer. And I am a red head and I did not have a sunspot childhood.
So the way I look at it is it’s not, if it’s when I know it’s very much knock on wood, but at this point it’s almost part of my investments treasury. And it sounds terrible because if something happens to me, I have way more than I would possibly need. But it’s my odds are climbing on my tormentors for any normal person between now and 70.
It’s about wanting to write, giving them redhead, Fisk in Australia. My odds are higher that most. So for me, I feel like it’s not you, but it’s when, and then when I get that, I’m going to get a [01:16:00] huge tax repay up. Not that I want it to happen, but I just, I expected
Captain fI: financial planning.
Captain fI: Yeah. That’s interesting. Okay. So we’ve covered the main kind of insurance groups. You talked a little bit about trauma insurance. So if something, I had no idea about I’m going to throw this random one out, cause I’ve always thought this was a judge you on.
Hit insurance. He’s just scam. Cause
Katherine: yeah, look, I’ve never taken it out. And I’m going to say all things hindsight, 2020, I needed it at one stage and I didn’t have it, because I’m a plan I had, I managed just fine, but it should’ve had it. But the reasons were very specific because I had a dog that was really terrible about escaping, breaking it.
Someone would come and visit the house and he would almost like he could know them coming and I didn’t have a screen door and he would just dash in rundown wall.
Captain fI: Oh
Katherine: yeah. And he just assumed, and then you like, please let him come back in one place. And he was doing this [01:17:00] for a year and one day he got hit by a car and I’m like, you know what? I do think pet insurance has rubbish, but the behavior of my dog indicated that I probably shouldn’t have that because he was at risk for that.
And I wasn’t able to secure the yard for the,
Captain fI: my sister’s dog. We refer to her as the $12,000 dog because the same thing happened. She got hit by a car and it was $10,000 to get her leg fixed.
Katherine: 10 to 12
Captain fI: grand. We just couldn’t Bring ourselves to put her down. like my sister’s best friend, almost like a stability, companion dog.
And so yeah, the family just pitched in, just coughed it up. Yeah. But I don’t right off pet insurance, but
Katherine: critically analyze it with the risks. I should’ve had it based on the risks, that was there. ID consider it at an early stage and I looked at it and obviously it’s very breed specific.
Cause some breeds are notorious for problems. So you premiums vary. But I went through what really put me off is I did actually go through a couple of policies and I [01:18:00] looked at the annual premiums, but then I went through the closes, which was talking about the max payments that you could get. And it was so restrictive and even one of them it’s one of them was like an ancillary or fake feature, which covered the vaccination of your pits and stuff like that.
And I worked out and it was captain something like pay an extra. It might’ve been an extra 50 bucks a month, so we’re talking 600 bucks a year and you’ll get all these features, these extra care packages that will be covered. And then I read the clause and it’s we will pay a maximum of $450 in these scenarios.
I’m like wait. So you want me to pay an extra $600 this year? To get $450 back in benefits. I’m like that doesn’t work. And even though the things that you would use, there’s still $150 gap. It’s , why don’t I just put the 50 bucks in a bank account and I’ll spend $450 that you want or need to, and I’ll probably get the 150 different.
So there was things like that. So I found some really restrictive policies. It’s all things that will be people who have benefited from it. Absolutely. But I think you have to be like old things, read the fine print understand what’s involved. That’s a really big thing, [01:19:00] but the biggest thing that frustrates me about pet insurance, isn’t it, people willing to show the pets before they enjoy themselves.
That’s what drives me mental. Yeah. I get that pets are an emotional thing, but at the same time, other people will be emotionally affected. If something happens to you, if you’ve got a parent or a child or a spouse, , you will be an emotional mess. And so many more people.
If you can’t imagine this happening to a pet yeah. You need to get yourself. So , was on the airlines, put on your oxygen mask first before you started with
Captain fI: absolutely. Yeah. Okay. No, I like it focus on the most important thing look. You alluded to before that with our insurance, you obviously have some through super and some outside.
Can you have it all paid through super, how do you finance the,
Katherine: yeah, sure. So the only insurance you can’t find from super is trauma insurance. You must pay that from personal cashflow. You don’t have a choice. That’s positive a superannuation legislation [01:20:00] your life, your TPD and income protection.
You can a hundred percent fund all those through superannuation. Whether that’s, a group arrangement with your fund or you go direct and then get them to pay the premiums from whoever your current superannuation provider is. However, that being said, like I said, I find income protection through dangerous.
The whole point of insurance is risk transparency of risk, getting rid of risk. But in my mind, there’s too many risks associated with having income protection a hundred percent through super. So what we’ve seen in the last sort of maybe it’s been about the last seven years, insurers started coming out with this thing, cause obviously cashflow is king.
So what they said is, okay, How about, we give people the ability to have an income protection where the majority of the premiums are funded through super, but anything that doesn’t meet the superannuation law requirements? It can be the one policy, but we’ll pay it. You just pay that personally.
So case example of that is if you have income protection through superannuation, by law, sick leave, offset payments, will impact your claim. But if it’s, but if it’s earned outside of [01:21:00] super, that can be a condition of your policy that it’s not opposite. So I had a guy who he introduced hand really badly, and we had this what’s called a split policy.
And so we lodged the claim and they went, we have to assess it under the suicide first, but under this, because he’s getting all these benefits from his employer, they’re getting him sick leave. Superannuation law says we have to deduct the payments from whatever the employer has decided to pay him.
And because they were doing a hundred percent of his wage, at least initially, they’re like you get nothing. But because we own part of the policy outside super, they said this gives you payments. That override the first one. So the guy did get paid because part of it was only outside through because we had a cause override the other one, also things like elective surgery can be an issue if you’ve caught COVID inside super This thing’s called specific injury benefits.
I love those. For example, if you fractured something, I see mountain bike riders, fracture, collarbones, all the time, netball is not considered a contact sport, but boy, is it vicious? People would damage ankles and stuff all the time. But for a lot of office workers, they go back to work the next day, right?
They might have a trip down to the ed and then [01:22:00] they’re back to work the next day, tradies, it’s super office workers. You get a class, you go back to work. And the, this particular feature basically says you broke this specific bone and this is how much money you get and you get to pay it.
Even if you didn’t take time off work, you can’t have that through super, you have to have that. That’s a feature of a policy it’s only owned outside of super. So that’s a really good way of structuring to get the best of both worlds. If cashflow is tight, you can use your super to cover the majority costs and then whatever you need to get that extra security to avoid the superannuation legislation risks you pay for that personally.
And that part, you generally get a tax deduction for. Now. The big thing that’s important with this is anytime you fund cover from super doesn’t make it free. You’re just paying for it with a different asset, right? You’re getting rid of your future time income. That’s impacting that and taking off your current income needs.
Then when you got your life and TPD insurance, once again, you can do it, your own cashflow. You can do it through super, but most people do it through their super simply because it’s easier. That’s usually where they started getting the first life and TPD cover. [01:23:00] But something to consider is if you put life and TPD in your own name, you don’t get a tax deduction.
At least not for most people. If you put it through super there’s no tax deduction there either. However, if you want to offset the impact of the contributions against the super balance, you can make top-up contributions to super. And for a lot of people, they could get a tax deduction to do that.
You can salary sacrifice to super. So if you went, oh, your my premiums are a thousand bucks a year, then you could just go and salary sacrifice an extra thousand bucks a year to your super. And your premiums are suddenly become tax deductible in a very roundabout way. So that’s a strategy that a lot of people use to tax effectively pay.
Captain fI: Yeah. So instead of paying your normal marginal rate, you’ll just be paying the 15% through you come in, as it makes sense to do
Katherine: that. Yeah exactly. Even for low income earners, it can make sense. There’s a strategy where we look at, because if you do this set up where you go to the insurance company direct and you find it through super and they will apply usually a 15% discount if it’s been funded from super.
Even if you’re a low income and it’s not, doesn’t make [01:24:00] sense to make salary sacrifice. If you’re a low income owner, you might put a thousand bucks into super, you don’t claim a tax deduction, but you may get the co-contribution. So you go, you put a thousand in the government puts in 500, there’s your premium covered.
Plus you’ve got a 15% discount on your insurance. So yeah, so there’s income tiers across the board can benefit from one strategy or another.
Captain fI: Okay. It sounds again, coming to the conclusion that there is no one size fits all as best to go to a professional and have a professional, do all these numbers for you.
Katherine: Yeah. Yeah. Like I said, product is the solution that we use, but the value of an advisor is not product. The value of an advisor is the strategy. So strategy. Yeah.
Captain fI: Okay. Look, this has been awesome. I want to shift gears a little bit and just talk a little bit more about yourself now, Katherine, if that’s okay you mentioned that you hadn’t always specialized in risk and insurance. I just want to say, is there anything you’d be wish you knew before you began your career in finance?
Katherine: Oh, gosh. I was lucky that I [01:25:00] got a big warning at the very beginning with someone. I actually didn’t choose this career at somebody else chose it for me.
And I just went along for the ride and then, life happened. But the biggest thing I was told that it’s a love, hate relationship because the learning never stops. Legislation evolves, constantly strategy, legal environments, product changes.
It all changes constantly. So it’s a job that you never get to stop learning. So if you are attracted to that, and it’s awesome because you’re engaged by it. If you’re overwhelmed by it, it’s not a good choice. So I was given a heads up about that and I do sometimes I have love hate. It just depends on how fast the change happens, but for me, the biggest thing was that I always knew eventually I’d be in business for myself. And I think, with the wires, I heard someone explain it really well. And it made so much sense. A lot of people go into business for themselves because they want work-life balance because they want to take control of their working hours and stuff.
But what ends up happening is the exact opposite. For most business owners, they work longer hours. They’re more burnt out. They’re more tired than ever before. I think I wish I had known before I went into the I’m glad I went into [01:26:00] business for myself, but I wish I had known just how much extra time it’s literally like you start taking on a second full-time job or at least a part time one, and I.
Something that most people don’t realize until they’re into it.
Captain fI: I saw a meme and it was like ah, what was it? I was sick of working nine to five. So I started a business. And now I’m working 24 7.
Katherine: Yeah. Yeah. It’s funny. I was in WWI recently and I was supposed to be there on holidays, but they changed the border restrictions as I was boarding. And I ended up spending the entire time in quarantine and anyway but it was , people like what you’re going on holidays, but you’re a business owner.
You don’t get holidays and I’m like, shut up. I’m going on holidays. And I was so annoyed. The phone did not start ringing the entire time and it actually hit my mental health a bit. I was feeling really resentful and I thought, man, if I ever leave my job, I am doing a job that when I leave, literally I’d be a cashier or something like that.
I will leave the job and I will not give it a second thought. And the only reason that would do a job like that is because, social benefits or something. But yeah, that was only the one [01:27:00] thing that something that people should be mindful of if they’re going into business for themselves.
Some people do get a hundred percent passive aspect, would they, their business, that’s pretty rare. So I think people need to go in eyes wide open and know that there’s a lot of time involved and obligations. When you go into business.
Captain fI: Yeah, very wise words. So this could be opening a can of worms now, but you sorta touched on it few times during conversation about your personal investing preference strategy.
you’re going to talk, in general terms about your personal investing preference, how have you done it and what do you personally invest in?
Katherine: Oh gosh, mine has a volt heaps. I’ve owned an investment property. My current strategy is shares.
I like direct shares and I’ve done managed funds. I’m a big fan of managed funds for debt recycling purposes. But right now I’m just focused on shares. I’ve owned ATM’s, I’ve tried all sorts of stuff. I would have worked well, except the people that ran the company, been doing the Dodge and, selling the same machines to multiple pair parties.[01:28:00]
But the whole thing, the concept was sound sounded the execution was illegal. So yeah, that sucked. Yeah, so for me I’m a thematic investor, I focused on things and, so exchange traded funds and all that stuff is good. It’s very passive aspect, but I am a little bit of quite risky and aggressive with things.
I like picking on themes. And my current theme I’m focused is on this medical stocks I’ve got, which I will never buy a medical IPO because most of them tank, I wait until they’ve done their thing. Tanked go to penny stocks, play around with that, especially when it comes to cancer drugs, because obviously that’s related to my job.
I like to be informed about cancer from developments. And then the other one is I’m really big on gaming tech. I think e-sports mobile gaming, that kind of stuff. That’s for me, I just look at the behavior around me. I will only invest in what I understand. And for example I invested in zero at one point because I used the counting software and I got the, I [01:29:00] got it.
I’ve since sold that stock. But things like, I look at my kids in the amount of money people are spending on mobile apps and stuff like that. I’m like I want in on that.
Captain fI: Yeah, you should talk to Matt and Liz rod. They’d been training me in some of the website stuff, but Matt is so big into the gaming stocks and not necessarily the games, but the tech behind what’s around the production of the games,
Katherine: I just feel like it’s a growth area. And I’m gonna say I would never advise someone on a, I don’t do that as an advisor, but for me, it’s, like I said, I’m quite aggressive with the way I invest it works for me, and that’s what I feel comfortable with, and I liked the control around the admin part.
I hate what’d you call it share purchase plan office, corporate actions and, and.dot dot, but thank God for, platform providers and whatnot, consolidate all your tax reporting for
Captain fI: you.
Katherine: But otherwise probably my biggest thing I focus investing in is my own business. I’ve run the numbers and I looked at it and it’s for me, my business is where it’s at, but that also comes with legislative risk as well. So I’m really big on making sure, I’ve got super [01:30:00] I’ve investment bonds, I’ve got shares, I’ve got managed funds, all those things focusing on getting as debt free the fast as possible, all that sort of stuff.
I think you should never rely on one source. It’s good to spread it. The legislative risk as well as investment risk. Yeah.
Captain fI: It sounds like you’ve got a highly diversified portfolio. Yeah, it’s nothing to do ADHD at all. Katherine is a,
Katherine: yeah, I just it’s funny. I’ve learnt so much ever since I did get diagnosed, but it explains so much, but I love to jump at opportunities and I’m also someone who learns by doing you put protects books in front of me last struggle, living it, breathing it, doing it is the best way for me
Captain fI: to look kinesthetic learning.
I understand like when I’m teaching people to fly you can only read a book so many times, but getting into the cockpit, you smell it, feel the vibration it’s yeah. It’s completely different. Yeah. I’m the same. . So look, I’m going to ask this question to ask this to everyone, what would you say your top tips are for someone who’s on the path to [01:31:00] financial independence?
Katherine: My biggest one would probably be surround yourself with people who are on the same journey as you cause literally, if you’ve got people who’ve resentful of your.
That’s going to cause stress and strain and tall poppy syndrome, or, can try to pull you down. People don’t like the other people who’ve been different to them. Find people who are gonna inspire you to keep on going, because I think sometimes, especially when you’re dedicated, you have to give up things.
Sometimes there is an element of being smart, but there was also some, you’re getting away. Some of today’s pleasure is to focus on a greater reward for tomorrow and that’s hard. So if you can find other people who are also into that, and can inspire you and encourage you in areas that you want to be encouraged and keep you accountable, I think that’s invaluable.
The other element is it’s never too late to start. And even if you feel like you can only start small and be like the frog in water, except this is the good frog and water, because, instead of being bald to your death, you make small incremental changes, so you don’t feel it and you get where you want to go.
But never too late to start. And the earlier that you do start mathematically, the [01:32:00] easier it will be to catch up on any shortfall that. Yeah,
Captain fI: absolutely. I always get annoyed when I look at the compound interest charts that say, oh, if you start at 20 versus you start at 25, because I started seriously investing in my mid twenties.
And I was like, dammit, why didn’t I start this when I was 17?
Katherine: Oh man. Yeah. Or I see a lot of people like that now, except we’re having the conversation, 40 year olds who are going, oh why didn’t I start when I was 30? So it makes a difference over time. And yet you can catch up, but mathematically it’s a lot harder.
So the earliest up the
Captain fI: better. Yeah. I love your comment about the networking and surrounding yourself with successful people. Someone told me once if you’re the smartest person in the room, you’re in the wrong room. So you go and find a new room, people that are going to help bring you up.
So yeah, I think that’s very wise. So I guess my final question, Katherine, and I’m interested to hear what’s been the biggest influence on your journey to financial independence.
Katherine: Probably my parents. I think there’s a lot of similarities between yourself and I, because my parents when we came to Canberra, I want to [01:33:00] say my dad sold the farm.
It was a case of yes, he sold the farm to his brother and he was like, oh yeah, just pay me when you get the money, which was , never. that meant, was it interest rates were ridiculous in the high teens. And we rented a house and I think we didn’t even have money for furniture.
So I remember the first six to 12 months, we all slept on the lounge room floor in the same room. And people would drop off boxes of food at our house and we couldn’t do a lot of it. I felt poverty, if that makes sense. I was very conscious of it. And even for years later, I watched my parents make decision about how often we could afford to wash our clothes.
And my mom would even make her own laundry powders to try and spread it out further things like, they’d want to take us on an outing, but one of the parents would have to choose to miss out despite wanting to go because they couldn’t, they really had to skimp and save. And there was situations where money did come their way, but they made some really bad decisions.
And I remember looking at that and I just saw the stress that it caused my parents. I didn’t feel like I lacked as a kid, but I certainly saw the stress that it had on my parents. And I just remember growing up thinking, I don’t [01:34:00] want to be like that.
I don’t want to have to face those choices. So I want to learn everything I can about money to make sure that when I get it, I don’t have to work for money works for me. So I’m a really big believer in that. So yeah, I don’t want the money to dictate my decisions. So I think if I can learn to be in charge of it, then that will give me options and it means I don’t have to deal with those scenarios.
And so that was a really big motivation for me. But as far as where I’ve learned things, obviously being a financial planner, I’ve literally had to study it the university level. And then, you see what works for people and it’s peer networking with other advisors and I’ve learned some strategies from accountants.
I’ve done my own diggings. I’ve made mistakes. I, for the ATM’s all sort of stuff. Kinesthetic learner, I’ve learnt by doing a lot as well. Yeah. Yeah.
Captain fI: I really appreciate your sharing that it’s obviously incredibly personal story about your childhood and Yeah. I feel the same way. There were Friday night, hot chip night and I was like, Ooh, that’s a celebration of the,
Katherine: oh, I suppose I was spaghetti pizza mum made the base from and water and there’s nothing to put on this pizza. So let’s use it in a [01:35:00] spaghetti.
Captain fI: Yeah. Oh my goodness. I’m actually, I’m making pizza with my nephew.
Tonight, once we’ve finished I’ve made some sourdough base , we’re gonna try and make our own pizzas. So it could be a disaster, but let’s see.
Katherine: Yeah no, I love it. I’ve become a bargain hunter. I actually get very excited about finding good deals on things these days.
So for me, it’s not about, I have to, because of a financial restriction. I love it for the challenge. It’s about backing that really good healthy mind frame around it too. Yeah.
Captain fI: Look, it’s been an absolute blast having you here on the show, Katherine thanks so much for making the time to come on and chat.
And I’ve learned an absolute heap of stuff today. I’m certainly going to be going and doing a bit more research and looking at some more relevant insurance for me. And yeah, I totally would suggest anyone listening as well, do a dig, have a listen to have a look around and, potentially get in touch with an advisor to talk about this kind of stuff, because it is important.
And it’s something that I’ve glossed over quite a lot. And I think the fire community does as [01:36:00] well, because there is that attitude, used car salesman sort of thing. So yeah, definitely encourage people to pay a little bit more attention to this. So Katherine, where can listeners get in touch with you all a little bit more about yourself?
Katherine: There’s two ways that people can do. As I’ve got my own podcast as well. It’s called money matters with myself, my, co-host Amber who you’ve interviewed as well. We cover a broad range of financial topics. So that’s one element and we like to do it, where possible with a little bit of a dark sense of humor.
And there’s links to get in touch with us on there. The other way is if, you say you specifically wanted to reach out and speak to me about your personal insurances and stuff like that I’ve got a accountably page, which you can find on my webpage.
So that’s just H C I s.com haze and co insurance services of what stands for and people can book in and have a chat to me. So if they want me to review what they’ve got in place, and have a chat to them about what they might want to consider that’s what I do.
Captain fI: Awesome.
I’ll make sure that in the show notes for the episode as well. We’re going to have links to everything so you can jump online to the blog and pretty much get in touch that way. Look, Kevin, thanks [01:37:00] so much for making time. Again, it’s been an absolute pleasure. Hopefully it’s not too cold Canberra.
Winter’s night for you and you’re staying warm somehow. They’ll figure it out. All right. I’m sure. we’ll be in touch in the future. All right, Katherine.
Thanks for listening to another episode of the captain for financial independence podcast. So read the transcripts or check out the show notes, head over to www captain fire.com for all the details.
If you have a question for the captain, make sure to get in touch, you might even make it on the airwaves. You can reach me online through the captain fire contact form. Get in touch through the socials. I’m active on Facebook and Instagram as well as a number of online finance and investing forums. And finally remember the information presented on the show and the links provided for general [01:38:00] information purposes only they should not be taken as constituting professional financial advice.
You should always do your own research when making any financial decisions and make sure it’s appropriate for your personal circumstance.