Youi Insurance Pushing a ‘Cheap’ Policy Benefit

It’s pretty damning about their processes and sales tactics.

While what Youi does was obvious to those in the industry, with their direct push model, and focusing on cheapness rather than benefits, it’s not just Youi who does this, they have been the most blatant.

For some reason General Insurance, that is to say, house, contents, car etc, has been devalued by the market and consumers to the point where it’s a commodity, like milk. That is, we see no difference between providers, assume they are all the same, and buy purely on price.
This report came to the ultimate conclusion with Youi, where people were buying contents policies, just because they were cheap, but never read the policy wording, that showed that it did not cover your belongings out of the home, which is pretty much standard in premiere policies with the other insurers.
I have personally seen clients who were assured by their insurers that their policy covered loss of rent for their investment property, only to find out that they were paying extra for loss of rent due to accident but had no cover for loss of rent due to tenants actions, and that other insurers cover accidental loss of rent as standard, and only charge extra for tenants actions.
Or clients who have been sold a cheap house policy, but do not realise they have moved from a policy that would rebuild their home regardless of price, to one that is sum insured only.
Many people assume that because their bank can sell them insurance that they have the right advice, but most bank staff cannot advise you, can only sell the one policy the bank sells, and its actually just another insurance companies policy with their logo on it.
So what’s the answer? The answer, from my perspective is to treat General insurance with the same important as life insurances, that is, take advice from a professional adviser with a written report, review it every year, or when things change. And don’t buy purely on price, sometimes a better policy, or a better support network at claim time, might cost a few dollars.

By Alan Borthwick

Changes to KiwiSaver Homebuyer’s withdrawal

mtgeThe government has announced some changes to KiwiSaver withdrawals for 2nd chance first home buyers that will come into place on the 1st of July 2016.


I have read a couple of articles and there is some confusion about what it all means, so I thought I would clarify this for everyone.


Current situation:

There are two aspects to KiwiSaver assistance for buying a home.


First, the KiwiSaver withdrawal, and secondly the Home Start Grant.


If you are a first home buyer and have never owned a home before, you get your KiwiSaver provider to confirm you can withdraw your funds, and you apply to Housing New Zealand Corporation for the Home Start Grant.


If you are a 2nd chance first home buyer, you have to first apply to Housing NZ for permission to withdraw your KiwiSaver, on the same form you use to apply for the Home Start Grant. Once housing NZ approves you as a 2nd chance buyer, you go back to your KiwiSaver provider with that approval to get your KiwiSaver withdrawal confirmation.


So far, all makes sense right?


The current rules for both the withdrawal and Home Start Grant are:


First home buyer

Withdrawal Home start
No income requirements $80 000 max for 1 borrower, $120 000 for 2 or more
No maximum assets 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).


2nd Chance First Home Buyer

Withdrawal Home start
$80 000 max for 1 borrower, $120 000 for 2 or more $80 000 max for 1 borrower, $120 000 for 2 or more
20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house). 20% maximum assets compared to the max purchase price (so $90 000 for a $450 000 house).


So what’s changing?

The bit that is changing is the maximum income for the 2nd chance first home withdrawal is being removed, so it does not matter what you earn, you can get your money out.


It’s not changing for the Home Start Grant, but just to get your own money out.  And there are no changes for people who have never owned a home before.


What difference will this make?

Well if you have owned a home before, but earn over the cap, you can now get your money out of KiwiSaver to fund your first home.


This could well speed up your ability to get into a home, and I can already think of a lot of clients this will help.


It won’t help if you already have over the asset cap, so it’s for genuine cases of people in a first home buyer’s situation, but it’s a good boost for those who used to own a home, came out with little to nothing, but have a bunch of money still in KiwiSaver.


If you have used KiwiSaver before, you cannot withdraw it twice, and you cannot take out any Australian super or UK pensions that have been transferred in, but other than that, you can withdraw all but the first $1,000 of your fund.


The Housing New Zealand Corporation site has an official notice of the change, but if you have any questions on this, let DUX know, and we can provide advice and make it easy for you to get into your (2nd chance) first home.

By Alan Borthwick

DIY Retirement Warning

kiwisaverI am not convinced that the answer to people not planning for retirement, is more Do It Yourself (DIY) focus. Sure, it’s better than nothing, to use the calculators etc., but the problem with these is the placebo like effect of having run the calculator, and then your brain basically deciding you are done, and then you go back to whatever else you are doing, and spending.

Doing this with an Adviser (an Authorised Financial Adviser (AFA) who can advise on long term retirement planning), is better because the calculators are not the point, the calculators are just the overview.

The purpose is to identify the habits to change and where to put money, what to change etc. so that you get the better benefit of compounding interest, and do a bit better with your money each year.

This bit annoys me though:

Retirement planning is not a precise science, and people should ignore the big, scary numbers the money men and women sometimes claim you need for a comfortable retirement.

It is not a precise science, but you should not ignore the big scary numbers, but understand that a good planner will show it in context of what you need to do each year and each week. But, if you ignore the big number, and think “she’ll be right” then you are doomed to failure unless you have a happy accident.

The article mentions wildcards like the Auckland rates increases and Christchurch changes to insurance (though premiums did not double, but media is nothing but there for hyperbole), well that’s what a planner helps you with, a DIY calculator cannot.

The general process for retirement planning is:

1. Determine needed income needed in retirement
2. Determine savings needed to get there
3. Allow for inflation and other expected unexpected expenses
4. Plan for clearing the mortgage
5. Alter the budget and spending habits as needed
6. Sort the KiwiSaver and other products as needed
7. Set up Review plan

It’s easy, but it’s not simple. A good plan with solid advice will make the difference between retirement, and a good retirement.

By Alan Borthwick

Getting a Student Loan? Get a Budget!

financial-planningFar be it for me to suggest that a student association is unlikely to put out a press release saying everything was fine for students, but they are not exactly the best source for an unbiased opinion.

It is true that most people who study will end up with debt, unless your parents can cover the costs, which most cannot, or should not; without putting their own future at risk.

It’s also true that the student living allowance has not increased since I was a student, so has clearly lost ground with inflation.

However, there is no reason for anyone to end up over burdened with debt as a student (barring a student loan for the most part).

Tertiary study just, like everything else, requires some planning and a realistic expectation of expenses vs income.

For example, it’s cheaper to stay at home and study than move out of town.

It’s better to work part time, than rely all on a student loan, and the less you drink, the better of course.

Most students revel in their freedom and burn through money pretty fast, and then have to borrow to cover the debts they have already racked up.

Certainly, I don’t see how most students can afford to go into town with the costs of drinks, but they seem to do it.

The other thing is, is University really the best plan?  If you are just going to end up another unemployed arts major, hoping for a government job, there may be better options.  Trades pay very well, and will be more in demand over the coming years than another policy analyst.

So, in summary, like all things, choosing to go to university takes planning, and budgeting; will require sacrifice and could end up with some debt.  It’s not meant to be easy, but if you do end up better off, then it’s worth it, if you choose the right degree and plan appropriately.

By Alan Borthwick

Are You Moving KiwiSaver For Bad Reasons?

kiwisaverHarsh that the AMP KiwiSaver gets singled out here for who has lost KiwiSaver business, when in reality the banks are creaming most of the KiwiSaver transfers from everyone, as they ‘touch’ clients more often than the other providers.

It has nothing to do with quality of KiwiSaver advice as no providers give any, yet AMP can actually refer you to a non-aligned adviser who can give you some; where at best the banks might put you on to one of their in-house Authorised Advisers, but good luck finding one.  ANZ has 70 Authorised Financial Advisers (AFA) for 660,000 members, Kiwi Bank has 1 Adviser for every 50 branches etc.  It’s pretty dire.

People are moving KiwiSaver for usually bad reasons, it will be ‘convenience’ such as seeing your balance on internet banking, which for the life of me I have never seen the appeal unless you are withdrawing your KiwiSaver next week, as you cannot touch it for years.

AMP’s KiwiSaver online access is no better or worse than others, although the adviser end of the system is clunky (though not as clunky as other providers), but for the consumer it’s much of a muchness.

The other reasons to transfer are past returns, which is like picking next year’s Super 15 winner based entirely on this year’s winner.  It’s possible that the past winner will win again, but it’s equally as likely they won’t.

A reminder – past performance has nothing to do with future performance.  In investing it’s all about, “What have you done for me lately?”

Very few are basing their investment plans on the future and access to advice.

Most people we speak to have never had KiwiSaver advice from their provider and are sitting on thousands of dollars, hoping it’s doing the right thing.

There are only 1,800 AFAs in the country and not all do KiwiSaver, so it’s not easy to find an adviser.  But it’s worth it.

By Alan Borthwick

Trans-Tasman Retirement Savings Transfers – Advice Is Key

kiwisaverThe rules around Trans-Tasman transfers are a bit odd, and a giant pain in the neck, but worth it.

It took years for the two governments of New Zealand and Australia to get to a place where we could get Trans-Tasman portability, and while the KiwiSaver providers leaped at it, the Australian ones, not so much.

Bringing money to New Zealand requires a pile of paperwork, a visit to the Australian Embassy (if you are in Wellington) or a lawyer who is recognised as being able to practice in Australia otherwise, and then hoping that some minor infraction does not have them send it all back.

Most people I know have had their stuff reposted back to New Zealand at least once.

Going the other way, most of the Australian providers are not interested in helping.  It’s starting to change, but essentially they don’t want the hassle.

I don’t blame them, it’s a bit of a pain as the money that’s transferred has to stick to the original countries rules, so money from Australia cannot be used to buy a home in New Zealand, and money going to Australia has to stay in the fund till you’re aged 65, not as part of the early withdrawal they can do.

So the answer?  Get advice as usual, read the documents thoroughly and be patient.

Once the money is here, you don’t have to worry about what Australia does with their rules.

It’s not about long term returns etc., just about having your money in a country you are in and can keep an eye on.

By Alan Borthwick

In the Market for a House? Don’t go to House Auctions!

mtgeAt least this article is not about the housing market in Auckland this time!

Auctions suck when you don’t have a 20% deposit.

The bank won’t sign off on the property, and short of paying for a valuation before you bid, you have to either just bid or hope, or you have to pay for the valuation, and then might not get the home.

Short answer is – don’t go to auctions.

Seems simple and it may or may not be, depending in where you live, but there are lots of houses for sale, and not all are on auction.

Valuations are risky if the property ends up worth less than you pay, as you may have to scramble for more deposit, because the bank will lend against the value or price, whichever is lower.  So, for example if you have a $30K deposit and want to buy a $300K property, that’s a 90% loan.  But, if the property is only worth $290K, the bank will lend you 90% of $290K (or $271K) so you need to find the missing $9K.  Not good.

That’s bad, but missing a building report could cost you tens of thousands.  Don’t do it.  Always get one, even if you are paying for something that may be worthless if you miss out on the house.

If the vendor provides one, it’s okay, but it won’t have been extended to you (and they probably should not be giving it to you anyway), so you have no protection if something is missed.

It’s still not worth as much as the one you pay for, for your use.

There are other traps as well, about insurance and the age of the house, when it was built and moisture tests, etc.

Get advice!  A good adviser (like the DUX team) knows all these traps and will help you with the property you are looking at buying.

It’s better to walk away from a house that looks like a dream, than buy it without due diligence and risk it turning into a nightmare.

By Alan Borthwick

Student Loans – No Interest, Doesn’t Mean No Cost

financial-planningI am guessing the journalist on this story was not a student in the mid to late 1990s when you could download your entire living allowance money in one go.

That meant that many people used their money to buy cars, travel, stereos (back when CD players cost money) and alcohol of course.  Me, I bought magic the gathering cards with my first loan money (I was 17 and a career in financial advice was a long way away in my own defence).

So, none of this surprises or worries me particularly, students have spent their loan money on whatever they want for a couple decades now.  Sure there is the issues that this money is only for course costs, but that’s minutiae more than anything.

With student loans essentially free now, there are some bits relevant to students to think about.

  1. Just because it has no interest, does not mean no cost. You have to pay this back when you are earning more than $19,000 a year, at 12% of every dollar you earn above that. This is going to take you a few years to repay, and the more you borrow, the longer it will take.  The longer it takes, the longer before you have the money in your pocket to do more fun things.
  2. It’s going to impact your ability to go overseas with no worries. If you go overseas, you need to pay the loan back at a higher rate and so you cannot quite so carefree head off on your overseas experience.
  3. The expense makes it harder to buy a home. The balance of your loan is not taken into account by the bank, but they will take the actual cost into account. For example, if your loan payment is $100 a fortnight, they take that off your available money, which could impact your ability to get the loan you want.
  4. Saving will be harder, as you have less surplus funds left each pay, making saving for goals take longer or require bigger sacrifices.

The government who made student loans interest free stated that no one would borrow more money.  And they were proven to be very wrong, as governments who ignore incentives always are.  Borrowing has gone up, and voluntary extra repayments dropped 99% when the changes came in.

There is a block of young adults, (anyone who was studying in 2005 and past), who has a bigger loan than those before them, and now has to deal with it.

So, before booking that stripper on your student loan, thinking about how long it’s going to take to pay back.  Are they worth it?

By Alan Borthwick

Politicians And Insurance Don’t Mix

Insurance-Personal (Custom)How nice of Winston Peters to determine what products insurers will be forced to sell.  Because that’s what this is.

Insurers are wary of insuring those without permanent residence, and it can be difficult to get medical cover.  So, unless Winston plans to force the companies, I am not sure how this will work.

If you already live in New Zealand and wonder why this matters, it does.

If your insurer has to insure people who are outside normal risks that they can control (i.e. they could go back home and cost more to provide claims to), then your premiums go up.

It’s important that as a customer of an insurer that you want them to be very sure of their underwriting, and that anyone riskier than normal gets charged more or excluded.  The more claims paid, the more you all have to pay, so you want the insurer to get it right and not be too far out of statistical expectations.

Remember this when politicians talk about interfering in markets and products, if you mess with standard operations, standard supply and demand, someone will get stuck with a bill.

Hopefully it’s not you, when you are too old/infirm to get new cover.

By Alan Borthwick

Looking For Property? Ignore The Average!

mtgeThe obsession with ‘average’ house prices always baffles me, who cares what the average is?  What matters is the price you are paying for the house, or the price you are selling it for.

The media likes to link average house prices with average incomes, as if somehow they are linked.  The only commonality being that they are the average of each thing.

Of course for incomes, the range is from 0 up, but for houses it’s going to start much higher, so the average already does not compare.

Essentially, the media is looking for yet another way to milk the Auckland issue (because outside of Auckland, who cares) by getting all excited about the average price in Auckland suburbs.  I am curious about the median price, and also the lowest price, so you can see what the range is.

For example, in Wellington, it’s well-known that there are very expensive houses in Khandallah, but you can also get some lower priced places.  So, the average will be high, (as you will get some over $1M properties), and the more of them there are, the higher the average, but that does not change the price of the bottom end.

So if you are looking for property, ignore the average etc. just focus on this:

  1. Do you like the area?
  2. What’s the price of the houses you are looking for (in terms of size etc?)
  3. Do you have the deposit for that price?
  4. Can you afford the cost of that loan?

Beyond that, averages and prices across the market are not of any value whatsoever.

Ignoring the media hype is of course, a good place to start.

By Alan Borthwick