I’ve written about this previously, but I never cease to be amazed at how lackadaisical many people are about their financial products despite it costing them money. Most clients rarely review their superannuation, insurance and mortgages.
In the last five years or so, the cost of superannuation products has decreased substantially, especially for more sophisticated options such as platforms. Maintaining an old policy could really increase costs with little or no benefit. It is also possible that the policy you have has features you are paying for that you don’t require. The reverse is also true; the policy may lack features that could be used to your benefit.
We have inherited clients over the years who are in policies that were appropriate at the time, but are now outdated and expensive compared to modern options. It is surprisingly difficult to motivate many of these clients to update their product despite clear advantages.
Insurance premiums can be substantially different amongst insurance providers, with different providers having different “sweet spots” when it comes to differing client situations. Regularly reviewing your insurance often offers an opportunity to reduce your premiums. As your situation changes, your circumstances might appeal to a different insurer. Furthermore, your insurance needs are likely to change over time. Quite often your need for insurance will reduce. As your assets increase, debts decrease and you have less years where you will have dependent children to support, your insurance needs are likely to fall. Reviewing both your insurance needs and insurance provider on a regular basis is likely to save you money in the long run.
Currently, interest rates are very low industry wide; however, it is possible that you could be paying more interest than need be. A quarter of a per cent difference in interest rate on a $500,000 loan is more than $100 a month difference in mortgage repayments. The way your debt is structured can also make a considerable difference to your overall position. If you usually have a substantial amount in your bank account, an offset account may be of value. If you have both deductible and non-deductible debt, how you structure your repayments can influence your long-term taxation.
Although most people find reviewing their financial products a hassle, a couple of hours of your time may save you a substantial amount of money, and I think most of us work too hard to waste money due to a mild inconvenience.
Alex McKenzie, Future Financial Services
Alex McKenzie is a financial planner, and the owner of Future Final Services in Penrith. He is a graduate of Western Sydney University.