Insurance can seem complicated and messy, but it doesn’t have to. I’ve created the DFND Method to simplify the process of finding the perfect insurance products for you and your family’s needs.
Through each phase — Discover, Formulate, Narrow Down, Decide — you’ll get an understanding of your specific requirements and the technical components of insurance so you can make an informed decision.
This is the very first step in your insurance journey where you will learn about what exactly it is that you and your family need in the way of cover.
Start with looking at your current situation
Your insurance needs are unique to your situation and the needs of your family. For example, a family with no children and many assets will have entirely different needs to a family with lots of children and no assets.
Put pen to paper and write down:
- the ages of each family member,
- how long you expect them to be financially dependant on you,
- Any income you earn — e.g. employment, rental income, investments
- All of your assets and liabilities,
- All existing insurance cover.
Look at types of insurance
It’s easier for you to make a decision when you understand precisely what it is you’re purchasing and the likelihood of using your cover. Thinking about death, injury or illness or a morbid topic most people like to avoid, but it’s vitally important to plan for. While insurance is great at providing peace of mind, it’s certainly not the only thing it provides — it’s a very valuable tool that is used a lot more often than most people realise. Knowing the types of covers helps you make an informed decision regarding what you might need protection for. The four types of cover are:
- Total and Permanent Disablement (TPD) — If you are sick or injured and cannot return to any occupation or your own occupation for which you’ve been trained and educated for, TPD pays out a lump sum or income stream to cover your financial needs.
- Trauma — Sometimes known as recovery insurance or critical illness, Trauma insurance pays out a lump sum to help you cover the costs while you’re recovering from a serious injury or critical illness like cancer or stroke.
- Income Protection — If you are unable to work for a period due to illness or injury, income protection covers up to 85% of your wage. (there are important changes coming to income protection, check out this article for more information)
- Death Cover — When you die your beneficiaries will receive a lump sum payout to cover the gap in finances that they’ll be left with in your absence.
Learn the technical components of insurance
There are a few different variations and options when it comes to insurance. The main ones include:
- Stepped vs Level premiums — With stepped premiums, the cost of the insurance increases each year as you age, whereas, with level premiums, the cost is based on your age at the inception of the policy and remains constant for the life of the cover. Initially, stepped will usually be cheaper, but can become unaffordable as you get older, which is statistically when you need it the most.
- Inside vs Outside of Super — your premiums for insurance inside of super come straight from your super fund, which is helpful if you have cash flow issues, but it’s a basic level of cover. If you need a more comprehensive policy, it might be best to get insurance outside of super as it comes with more bells and whistles and tax advantages in some cases.
- Any or Own Occupation for TPD cover — Own occupation is more expensive but allows you to receive a payout if you are unable to return to the occupation that you are qualified for. Any occupation allows a payout if you can’t return to any occupation that you are deemed to be qualified for by education, training or experience.
Once you have a solid idea of where you currently sit financially and the types of insurance available, you can begin to work out your insurance needs using a principles-based approach.
How to determine insurance needs
There are four key recommendations to consider when determining your insurance needs:
- Clear the debt on the family home — this way, the surviving spouse won’t need to stress about paying the mortgage. They’ll have a sense of financial freedom, which is invaluable when dealing with the grief of losing a partner.
- Replace your income — if you have children, allow for the surviving parent to be around for the kids. This means covering their employment income so they can focus on meeting the emotional needs of the kids.
- Only cover your needs — Insurance is a safety net, not a way to get ahead. There is no point in paying a premium for cover that you don’t actually need.
- Allow enough money to pay for a funeral and final expenses — This is a time to grief and celebrate your loved one’s life, not a time to be taking out loans to cover any final expenses.
This framework will help you determine exactly how much insurance cover you need right now, as well as give you the opportunity to adjust this cover as your needs change over time.
The final part of the Discover phase is understanding the four outcomes you could be faced with after submitting an application:
- Accept — This simply means your application is accepted without any conditions applied, known in the industry as a “cleanskin”, which basically means you’re in good health with a stable financial background.
- Decline — If the insurer deems your situation to be high risk, meaning it’s highly likely they’ll need to make a payout, your application may be declined.
- Load — An insurance loading may be applied to your premium to cover the higher level of risk the insurer is taking on by insuring someone who is statistically more likely to make a claim.
- Exclude — If you have pre-existing conditions or are at a higher risk of developing certain ailments, that condition may be completely excluded from your cover. This means that you would not receive a payout for injury or illness relating to the specified condition.
Once you’ve got a solid grasp of what’s available and what you need, it’s time to move onto the Formulate phase.
This is where the analysis and comparisons happen so you can choose the right policy for your needs.
Research and Compare
We can help you contact existing insurance providers and analyse your current products. After analysing all existing covers, we get quotes from your current providers to compare to the rest of the market. The two main areas that are compared are price and features; these two aspects are just as important as each other — it’s great to have the best features, but not if it’s going to blow the budget. A quality, sustainable level of cover is what we’re aiming for.
With a medical pre-assessment, you’ll be aware of any health issues that might influence the outcome of your insurance application. It’s easier to find insurance solutions when you go into this phase knowing of factors that could throw a spanner in the works. With a pre-assessment, you won’t be getting any nasty surprises when you’re application goes to underwriting.
Once your needs and insurances have been analysed, you can now structure your policies to get the best circumstances relating to price, cover, features, cash flow and tax. This is where you’ll decide how much of each type of cover you need, whether you want stepped or level premiums, any or own occupation, or inside or outside of super. There is an endless number of possibilities when it comes to the structure of your policies; it’s essential to get expert advice to ensure you’ve got the perfect structure regarding cover, features and price.
Adjust Features to Adjust Price
Insurance is a long game, so there’s no point in having a policy that you can’t afford or keep paying for in the future. This is where a tradeoff needs to happen — give up some benefits to reduce the price.
To give some perspective, If we were comparing cars instead of insurance, the ideal outcome would be a Rolls Royce — a top of the range, prestigious, luxury vehicle with a price tag that shows it. But we can’t all afford a Rolls Royce. A Volkswagon will still get the job done, just with less of the special features that the Rolls Royces comes with. The VW is a lot cheaper but still of acceptable quality when compared to a cheap lemon. The same approach is applied to insurance — we start with the fully loaded, top of the range policy and then adjust features to get the price down to where you need it to be. You may not end up with all possible features, but you’ll end up with a level of cover that suits your needs and your budget.
To understand the levers that affect the price, we provide alternative options to demonstrate which aspects are driving the cost. Once you have an understanding of the breakdown of the premiums, you decide the essential features you’d like to have, and we come up with your optimal structure by merging the alternate options together.
Get The Cover You Need For The Price You Can Manage
As discussed previously, it’s important to have the right cover for your needs, but it must be affordable, or you run the risk of having to cancel the policy, leaving you completely unprotected.
Armed with all the knowledge you accumulated over the Discover and Formulate phases, you’re now well equipped to make a decision.
Confirm Your Preferred Strategy
Once you’ve had a chance to go over the alternate scenarios, it’s time to decide on your preferred strategy. After undertaking the first two phases of the DFND process, you’ll be making an informed decision with the help of an insurance expert.
Strategic Work is Matched With a Product
When you’re happy with the structure of your insurance, an insurance product will be matched to your strategy in a Statement of Advice document. This is the final aspect of the Decide phase. Once you confirm and sign off on the advice, you’ll be able to apply.
The application process can be overwhelming, but we manage the entire process for you, so you don’t need to wade through endless amounts of paperwork. Once your application is correctly submitted to the underwriting process, we’ll follow up and keep you up to date with what’s going on. Because of your medical pre-assessment, you shouldn’t get any nasty surprises during underwriting. With us on your side, the process will run as smoothly as possible and you’ll have your ideal cover in no time. We also facilitate cancellations of the old cover, so you never need to worry about paying for multiple policies that you don’t need.
Get in Touch
We have years of experience helping people protect themselves and their families through insurance with our streamlined process that simplifies your experience. We’d love to help you find an insurance solution that works.