tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Thursday, March 28th, 10:13PM

Insurance

rss
Latest Headlines

Understanding excesses

More people are broke – and more people are wealthy – meaning more diverse choices for excess levels and waiting periods

Monday, October 12th 2015, 1:13PM

by Russell Hutchinson

Recently we checked the most popular excess options on Quotemonster. $500 health excesses are now easily the most common – now chosen for more than 30% of quotes, second most popular is $250 excess, but fourth is $1,000 excess, and it is rising in popularity. Nil excess is now the third most popular option, accounting for less than 20% of quotes.

What’s going on?

Well, people are wealthier. Plus, people in work have such easy access to credit, at such low rates, that finding $500 at short notice is pretty easy for most people. One way to view easy access to large amounts of short-term credit is a kind of instant emergency fund. It is typical for credit card users (that have a home loan with their bank) to be offered $20,000 and $30,000 credit card limits. Provided they keep credit cards paid off they have a big pool of short-term credit. A natural consequence is that we should probably see a lot more high excess insurance purchases.

Another dimension of the new financial environment is low interest rates. With rates super low you can borrow against property at 4% to 5%. Modal loadings – the extra cost to pay monthly, rather than annually – are often 7% in life insurance, and can be as high as 20% in general insurance. Logically the market should take this opportunity to switch these bills to annual payment and save money.

But ‘the market’ is a myth. There are segments in the market which behave in quite different ways. Sometimes the same pressures create opposite outcomes.

What is true for the higher income, home-owning, less indebted group, can be reversed for the lower income, or non-home-owning, more indebted group. There are lots of these people too.

For them low interest rates and high asset prices has seen them take on masses of debt to buy a house. Alternatively they have found themselves unable to get on the property ladder and they are paying a lot in rent. Some may have been enjoying low credit to pad their lifestyle.

These people all share a common problem – they are at the limit of their capacity for debt and so they need the lowest cash cost for each service today. An annual bill instead of a monthly bill would wipe them out. They need a low excess because they cannot easily find another $500 for an excess or survive longer than four or eight weeks before an income protection benefit kicks in.

Tags: health insurance Russell Hutchinson

« Today’s consumer can be hard workRaft of changes for insurance companies »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
Insurance Briefs

Partners helps fund depression recovery centre
New Whakamātūtū Wellington Depression Recovery Centre gets financial boost from Partners Life.

AIA adds cover for prophylactic surgery following cancer
AIA makes changes to policies and adds preventative surgery for several types of cancer.

Chubb appoints David Morrow as Country President for New Zealand
Chubb has appointed David Morrow as Country President for New Zealand.

nib adds specialist skills to its board
Two new board appointments at health insurer nib add new perspectives, chairman says.

News Bites
Latest Comments
Subscribe Now

Mortgage Rates Newsletter

Daily Weekly

Previous News
Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com