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| Publication: | Sunday Herald Sun |
|---|---|
| Date: | 2 March 2008 |
| Section: | Money |
| Page: | 103 |
DON'T GET BURNED: Warning as battlers cancel insurance
By Kate Adamson
Desperate families are ditching health and other insurances to pay mortgages as home repossessions hit record rates. With 57 homes claimed a week by lenders and variable interest rates rising above 9 per cent with two more increases expected by July, mortgage stress is taking its toll.
About 24 per cent of Victorian homeowners say they are finding it hard to keep up their repayments and are ditching health insurance and other discretionary spending, according to the Financial and Consumer Rights Council.
Private health insurance premiums are set to rise next month. Experts say insurances are often the first to go in tough times, but it is a dangerous move.
About 2.2 million Victorians are covered by private health insurance, with the average policy costing $2000 a year, Private Health Insurance Administration Council figures show.
More than a million Australians with private health insurance are earning less than $25,000. Lower income earners and those with big debt will be under the most pressure to dump insurance, Consumer Law Action Centre Gerard Brody says.
'They are not thinking fully about the long detriment that might have on them in order to save some money because they are suffering budget stresses,' he says.
Insurance companies are obliged to assist customers who are fighting to save their homes.
'Contact your insurance company and arrange a different repayment or change your insurance with someone offering a better deal,' Mr Brody says.
Peter Switzer, of Switzer Financial Services, says insurance is considered a grudge purchase, leading to it being one of the first discretionary spend items to be dropped. 'We kind of know we need it but we begrudgingly buy it,' he says. 'History has shown that insurances are one of the first to go because we are more likely to gamble when things are tight.'
Hunting down better deals on policies is better than putting you or your family at risk. 'Spend two hours on the weekend and do some research,' Mr Switzer says. 'There will be some pleasant surprises. Often policies have extracted large premiums out of people because they've been too busy to do their homework. Ditching it is clearly one of those shocking gambles. I'd be more inclined to, say, put down everything you spend and do a 10 per cent cut to this.'
ANZ financial planning relationship manager Katrina Pulbrook says dropping health insurance is not the way to increase cash flow. 'It's like Russian roulette to give it up – you have to go on waiting lists again. Of course the later you get in, the more expensive it starts to get,' she says.
Lifting the excess is better than dumping the health cover. 'At least you have the cover and you haven't cancelled it,' she says.
The Government's 30 per cent rebate on private health insurance and having to wait on 12-month waiting lists when rejoining funds are good reasons to hang on to private health insurance.
'The cost of a family benefit would be the same as the family going out to dinner once a month,' Ms Pulbrook says. 'Give something up, but don't give that (health insurance) up. If you don't have health insurance, you are less likely to go to the dentist and elective surgery takes longer.'
Website www.moneytime.com.au can help consumers hang on to their health insurance. Moneytime director David Miller urges families to find better deals.
'We are very aware it's a discretionary purchase and that's why we spend time helping people compare products,' he says. 'You can change funds relatively easily. Things such as waiting periods are carried across from one policy to another.'
Premium rises have slowed since 2004 from almost 7.9 per cent to 4.5 per cent, according to Australian Health Insurance Association. One in four people covered by health insurance will use their insurance for private hospital care this year, chief executive Dr Michael Armitage says.
Choice spokesman Christopher Zinn recommends dropping health insurance to the minimum cover during tough times and shopping around for a better deal. 'With home and contents you can really save up to $350 our research found,' he says. 'With car insurances, there are a lot of products our there, but be realistic about how much your car is worth.
'Insurance is an expensive products, but you'd be crazy not to have it, because homes do burn down.'