Don't Retire, Reinspire

Host: Welcome back, lovely listeners. I'm very excited today to introduce to you a friend and a colleague, Warren, who is going to introduce himself. He has over 60 years experience in the insurance industry, and he's going to give us some some information about things that he's learned and in no way constitutes advice to you. We do have that disclaimer. So Warren, would you like to introduce yourself?

Insurance Literacy Insurance literacy using Insurance insights

Well, thank you very much, Lyn. I appreciate the kind invitation to say a few words and share with your listeners the experiences of 62 years in the insurance profession. That is both the general insurance side of life where one has house contents, car, farm, business insurance, and the other being in life insurance and investment. Let me just, assist you with the difference between insurance and assurance. INS as an insurance is something that may happen.

The house may burn down. Your car may have an accident. You may get sick. You may break something. But there again you may not.

So you insure against something that may happen. And common today, of course, is the floods that have happened throughout New Zealand, where the flood is a peril that is part of the insurance industry. Now that is what insurance is, and that's what an insurance company does. On the other side of the ledger, there are assurance, a s s u r a n c, and that is for something that will happen. You take an assurance policy for something that will happen.

And what will happen in life is that you will get to a specific age, and let's say that that's 60 or 65, and then you'll be expecting a payout or untimely or timely death. There are people that don't make it to 65. There are people that have fatal accidents and leave behind large obligations that the widows and next of kin are required to pay. And if a person is conscientious about this, they will affect an assurance policy. Let me give you an example of what I'm talking about here, Lynn.

You may have a provided home as part and parcel of your occupation. It could be a school teacher that has a rural home. It could be a farm manager that's working on a farm. It could be a dairy worker who's got a home provided. There is plenty of examples where homes are provided as part of a occupation.

Now just suppose for the moment that you died untimely, that you were kicked off a horse, that you had a motor accident, that you just got a serious illness and passed away whilst in the care of that employer. Do you think for a moment that the employer is going to hand out sufficient money for your widow to purchase a home? Most unlikely. Indeed, the, teaching profession will not be providing a home for the widow and family. So I did considerable business in speaking to people who had provided homes in the occupations that I've just mentioned where you could sit with a person and explain how life assurance could assist them in the event of untimely death.

Untimely death is exactly what it says. You have been caught in an accident or had a fatal illness that has caught up with you and taken you out of your working life well before you got to retirement. Now just suppose for the moment in this conversation that you did reach 60 or 65, and you decided to retire. Now what are you going to retire on? What amount of money that you have put aside contractually and saved over the years?

Contractually means that when you first started work that you put money aside contractually. You didn't go to the savings bank and say I'm gonna save $10 a week, and you start off in good faith, and for the first 10 weeks, you've put aside that money. Then you missed the 11th week and 12th week, and, ah, to heck with it. No. You affect an assurance policy, more commonly known as an endowment policy, where you agree to save a certain amount of money every week or conversely every month.

And if you do miss a month, the life office will contact you. And that way, you will have a pretty good indication that by the time you reach retirement, there'll be sufficient money for you to, a, retire on, b, to go towards a house, or whatever amount of money that you require in retirement. So that's the broad background of what insurance is and assurance. Now I'm sad to say that, through a number of, legislative matters, their life officers that were plentiful within New Zealand have now elected to sell up and quit New Zealand. That's the big multinational Australian companies that were well known.

But anyhow, that's the difference between the 2.

Host: Well, thank you, Warren. That's actually, really interesting. So thinking about insurance, and retirees, what are some of the common misconceptions, that you're aware of that they might have around insurance, having an awareness now of the different sorts of policies?

Real-life insurance stories, policy management and reviews

Guest: Thank you, Lynn.

Well, to go to retirement, there's nothing better than affecting the policy amongst your early paychecks. My dad said to me on my very first paycheck, you have to save 10% of your wages. 10%. Cops, I was only on $7.50 a week, and that meant going over to the post office with $1 to save. But over the years, I saved it and kept it saved.

But it's better to have it on a contractual basis that is an insurance policy. And when I was 18, I affected an endowment policy to mature at age 40, and it came at the right time. When I was 22, I affected an endowment policy for 10 years, and I used it to amortize. That means that I used it to pay off contractual debt that I had in my early thirties. What are we talking about?

We're talking about if you affect a mortgage, the quicker you get that paid off the better, simply because you're paying principal and you're paying interest. That's self explanatory, and that costs a lot of money, and it eats into your salary significantly. I I I know about that because part of my career, I spent 31 years as a financial manager of a building society as well as being involved with the life insurance industry where I advanced many a mortgage to people who wanted to buy a home. Now in affecting the 10 year term endowment, Lynn, was meant that at age 32, I got a significant payment. That was the money that I'd put aside at age 22 that racked up as a maturity at age 32, and it was well in excess of $10,000 that came to me tax free.

Now I had a mortgage at that time, and I placed that entire amount of money against the outstanding mortgage, which reduced it down to just petty cash. It was a huge injection. And by the time other savings that I had, I was debt 3 by the time I was age 33. And you can get some idea as to what that can do to you throughout life. Because once you have a debt free home, you can use it to secure other debt, other mortgage applications should you require it.

There's nothing better than putting it into your asset column. And at the same time, it provide my wife and family with a debt free home. Should I die untimely? There are people that do die untimely. And to that end, they would have had a freehold house.

I didn't have to die to create that. I just simply put aside the money. Now there's a whole raft of contracts that you can do. I mentioned endowment. An endowment is a policy that you can take for a specific term.

That mentioned 10 years, 20, 30, 40. And if you say you're age 25 and you're wanting something at 65, well, it's a 40 year contract. Now don't worry about it. It will be there when you want it. Now that's one method of doing it.

The other today is a managed fund. That is a fund that your adviser will direct you on, and there's a whole number of mortgage of savings portfolios that you can place aside. For example, the managed fund will include shares. Now you might had not have the skill and the assiduity on how to work the share market. You might not know how to work a whole raft of things like global smalls, emerging markets, and so on.

And you've got to be very skilled to be able to work a managed fund. So it's a bit like a savings bank. The credit is built up within your savings. The people who look after it will take a fee known as a management fee. Now the only disadvantage is that if you pre decease the term that you wanted it to go, you just get back the credit balance in that managed fund, which might only be just a few $1,000.

And if you were thinking of providing funds for your next kin, therefore, it's very important to have an insurance policy that paid out not the amount that you saved, but the amount that you would have saved, I e, at 65. Let me give you an example. You you say, okay. Well, I'll affect a $50,000 endowment policy, a nice policy, and you're saving with that. Should you die getting to age 65, it's the 50,000 that's paid, not the amount that's in the savings account.

Whereupon, if you've got a managed fund, it's the amount of money in the managed fund that's paid out. You might have only put 2 or $3,000 into the managed fund. That's all that's paid out. So if you're married, if you have a family, if you have contractual obligations, if you have moral obligations, you should look very carefully at affecting an life assurance policy. Now today, there is a whole raft of, product that you can buy and amongst the most popular, of course, is term insurance.

Term insurance is exactly what it says. It provides the cover for a very small premium. Normally around about $2 a1000. So you can buy, a $100,000 worth of cover for $200 or $4 a week. And that would go a long way to provide, security for your widow and family, pay off any contractual debt that you may have, and so on.

So that is a term insurance policy. But the big disadvantage about it, Lyn, is you get nothing back. You've got to die before there is a claim. Now today, you can link the savings part of the policy. That is the endowment part, which is the savings, and it will pay out at 60.65 and then add on top of that the term cover.

Now you would think, how do I know when I want money at 60 or 65? It's very hard. The the day that I turned 60, it was just another day. The day I turned 65, it was just another day. I I got a very large payout from my endowment policy, 6 figures to be honest, and that helped me along the way for sure.

So what you do is you buy optional maturity endowment policies. That means it matures at age 60 and every day thereafter through till age 65. So you might be age 62, 3 months, 2 weeks, one day, and you think, hello, I need money now for a specific reason. You can get a maturity, not a cash value. So look, there's a whole portfolio and a registered adviser will be able to sit with you and explain either affecting a a managed fund or affect a a managed fund plus term insurance to provide you with that injection of capital should you predecease that day.

Insurance Stories, Policy Management, Insurance Choices

Many years ago, a person came into my office and wanted to insure a boat, and I gave him a quote and he said, oh, that's very good. And we went ahead and effected that cover on a boat. And whilst I he was there, I asked him what he did, and he said that he worked on a farm. And I said, oh, I know that farm. And we got chatting about it, and I asked him simply this question.

What would happen in the event of your untimely death? Oh, he said I've never given any thought. And this is a person who was aged 35, never given any thought, and he had 3 children. So we sat there and I produced sufficient cover to provide a home for him and his, family should he die from that moment on. Now that was at about 11 o'clock in the morning and I went as I walked out of the office, I said to him, goodness gracious.

That's a beautiful car. And he says, yes. That's mine. And we discussed this particular car. I won't give it a name.

I went home for lunch and coming back I heard on the radio that a particular make of motor car, we'll call it a Rolls Royce, had been involved in an accident. The very person I did business with at 11 o'clock swerved to miss a person on a pedestrian crossing, hit a power pole, and was killed. The proposal was still in my office. The life office that I worked for at the time, Colony Metro Life, accepted it was bona fide, and we were able to create the death cover, quarter of a $1,000,000, to the widow, enabled her to buy a house and move off the farm. She would never have got a job at the farm because it required the skill of the manager, and that was life insurance at work.

And over the years, people have said to me and added up the claims, and they represent millions in death claims and maturity claims and superannuation. And I can address superannuation for you in the same subject. Superannuation was very popular up until the turn of the century. Superannuation was a benefit provided by your employer. You would put a dollar into the scheme and your, employer would put a dollar into the scheme.

It was normally a percentage of your wages. So let's say you were on a $100 a week. You would put $5 in. Your employer would put $5 in, and that was $10 a week that you were saving, which would be paid out when you retired or on prior death or on leaving the company. Superannuation today has changed one heck of a lot.

Employers don't see it as their moral obligation to make that payment. And that's why I'm encouraging people to look at their own portfolio now that they're working, now that they're earning income. You look down and say, okay. If I'm earning $25 an hour, that's 40 hour week, that's a1000 dollars a week. A $1,000.

If you work for 52 weeks of the year, that's $52,000 that you would have earned over a period of 12 months. I put the question to you. How much would a person save and keep saved? How much at the end of the year will they say that's mine? That is mine for the purpose of whatever it's going to be?

Host: Can I just interrupt? So one of the things that, we have got now, Warren, of course, is a lot of, not so much the certainly their their children, is they will be paying into a KiwiSaver account where where effectively they're putting a percentage like 3%, 5%, 6%, or 10%. And the employer matches at 3%, dollar for dollar for 3%. And the government also gives them $500. There will be some of our listeners who will, in fact, be probably drawing down superannuation from exact policies.

I know years ago in education, teachers and other government workers had this type of superannuation. One of the things that was sort of going through my mind as you were talking and we look at, our our listeners and our retirees, you know, what what because these policies are great, but they're not now at the start of their, working life. They're now at the end of their working life. What should their basket of insurances, that that sort of portfolio, what what should they sort of have now at this at at this chapter of their lives?

Guest: Oh, good question.

And it's very popular today to attach or affect a standalone, but normally attached to an existing policy, permanent and total disablement. That means that should you become permanently and totally disabled, lose a limb, lose a leg and arm, or be confined to a wheel chair through any cause whatsoever, motor accident would be a popular one, you fall off the roof of a house and you can find a wheelchair, you're not dead. So there's no payment on an insurance policy unless it has the extension of permanent and total disablement. That means the claim value would be paid to you, the individual, and let's say that's a 100,000. That will enable you to get on with life, rehabilitate you into a new occupation, do a whole number of things.

But the most wonderful thing about it, no further premiums are required on the contract, and it will mature at the specific age or on prior death. Wonderful benefit. It's a wonderful benefit, and you can, in some instances, have critical illness. That means if a person has a stroke, which is not an accident, but a stroke or a heart attack and they're unable to work, they may get any of the whole raft of very serious illnesses that are out there today that prevents them from working or doing their usual occupation. If they were a school teacher, Lynn, and they can no longer be a school teacher in that chosen profession.

What What what what what happens, Warren, if they are retired and they don't have a profession anymore? I mean, what can they Thank you. Good question. It'll still be paid out as long as it hasn't gone past the maturity date. For example, if a policy matures at 60, that is the end of that policy.

So if you're gonna have get a critical illness, you'd wanna make sure that you had a policy that would payable till death. Now that is called Whole of Life. Whole of Life is an excellent contract. Just a fantastic it is designed to pay when you die, and one doesn't know when they're going to die. And if it's in their eighties nineties, the policy will pay out.

And if you got critical illness in it, it will continue to give cover up to a particular age, and it depends on the life office when that expires. So the most common that you would know of would be a stroke. You didn't die. You didn't reach a maturity age, but you're unable to work in the capacity that you're working at before, you don't even have to be have that, but the critical care will pay the claim, a very, very valuable benefit to be part of it. And in addition to that, seeing I'm speaking along this line, people may enter a plan that is will say $100 a month.

And they say, well, as long as I'm working, I can well afford the $100 a month. But just suppose for the moment I go down with COVID and I'm off for a month. How am I going to pay my obligations? You can build into any life insurance policy a waiver of premium in the event of accident or illness. Say, for example, you're off with a prolonged illness, and that illness is not getting better, and I don't want to use the big c, but a person could be off work for I was off work for 6 months, and everything was paid for because I built into it the waiver of premium in the event of accidental illness.

I wasn't permanently disabled. Far from it. I what didn't have critical illness, but I had an illness that slowly took a long time to get better. And during that time, I had my weekly and monthly obligations like everyone does. Every one of your listeners will have a weekly obligation, whether that's mortgage repayment, rent repayment, food, educational for people, and motor, repayments together with any high purchase obligations.

You've still got those obligations, and I managed to I've just built that into it. It was an infinitesimal premium just to get it in, and your adviser would be able to include that if you felt uncomfortable. So you might say, oh, let give me the quote for, the endowment policy together with the death cover on top of it. That's the term cover. Including into that would be a disability cover and a waiver of premium, and your adviser will be able to put it into the computer and it would come up exactly what you're looking for.

Meaning, that's within my budget. That's what I'm talking about. Warren, one of the things that sort of occurs to me is that with retirees, have you got a sort of example of someone who did the right thing or maybe didn't do the right thing and and as a consequence, you know, this impacted on their, you know, with their opportunities in retirement, you know. So they might have been in their seventies or eighties and, and as a consequence, things worked out well with regards to insurance or maybe, didn't work out so well. Molly, I know a lot of them.

And sadly, they, were people who thought they knew better. Not that I was being a smart aleck, but one thing that I can always tell a person, you will attain age 65, the normal time of retirement. What are you going to do at retirement? Now you've got a provided home, or you're renting a home, or you've got a big mortgage. What are you going to do?

How are you going to pay that contractual obligation? The mortgagee is not going to waive the remaining part of that loan that I'm giving you. So you need to be doing something, and there's nothing better than to have a lump sum. Now there are people who ignored that advice over the years, and that's their right. That's their privilege.

That's their obligation. They say, no. No. I'll spend it now. I've seen, situations where the farmer has contacted me and said, look.

I've got, people that have been working for me for, you know, 20 or 30 years, and they've now reached retirement, and they're no longer as active as they used to be. They're no longer as sharp as they used to be. They're not out there at 7 o'clock in the morning when they should be and I'm going to have to get rid of them. But what am I going to do? They don't have the money.

They've spent it all in living from the day that they arrived out there till that thing, until right now. And when you look back, they've probably spent $1,000,000 and just do the arithmetic. That's easy enough to attain, particularly on the incomes of today. And if, landlord for the want of a word or the farm owner or anyone who's provided a home has got a big job to go and speak to people and say, I'd like you out of here within another month or 2. And it's very heartbreaking because, invariably, those people end up staying in the property and are no longer as active at 75 as they were at 50 5.

Certainly, at age 85, they weren't as active as when they were 70, but these people have nothing to go to. I'm thinking of a of a farmer right now. Right now, he had attained age 65 and wasn't as sharp as he used to be. And what he did was he went to live in the little town of Ohtani in Hawke's Bay. Ohtani was just a little town and you could buy a property there very very inexpensively.

But that was all that he had saved in his savings accounts and other assets that he could sell, but enabled him to get off the farm and go to live in the little town of Otani. And, he liked it there, and I do too. I think it's a nice place. But having said that, he was forced to really downsize. And and I think it's quite responsible then that if you are a wage and salary earner today, you need to be making provisions for retirement.

You need to be saying to your employer, look. I've made arrangements that in the event of my untimely death during my employment with you, that x amount of money will be payable, and that will relieve you with the obligation that you may have in, dealing with my widow and family. And I'm just letting you know that that policy is enforced with the, x y zed company, and I I'm able to meet the, obligations of a $100 a month and the purposes largely. They have nothing wrong with going to your employer and telling them what you've done, giving them relief, giving them the relief of moral obligation that they may have in the event of a serious situation in your employment. I'm just thinking of a a a farm manager today right now who lived in Central Hawke's Bay.

The post office put up, telephone poles on his farm. The fog came down. The mist and fog that we're talking about just before came down, and he was on his farm bike. And he's getting along, I think, at a reasonable speed and forgot that the post the big pole had been planted. He plowed into it, was killed.

But he had earlier, through me, told the farm manager the I'm sorry, the farm owner what he had done. And the relief was enormous, absolutely enormous. I got a phone call one day from a solicitor in Central Hawkes Bay. He was concerned about a farm manager. I went and saw him and boy did he have problems that only a policy could solve.

And the same thing happened. The fog came down. He took a wrong turn. Went over a bank and was sadly killed. Here was the money generated just as quick as that.

No questions asked. Just all you gotta do is have a will. And if you've got a provider at home or if you're in that situation, make sure you've got a will. There are plenty of people who will give you advice on a will, who is to get the money, where it's to go to, who to be trustees, and so on. So if nothing else comes out of this conversation, I'm recommending that people get a will and then you'll be able to link it with the policy 1, 2, 3, 4, 5 that you've just recently affected.

Host: Warren, this is some really interesting information here, and it certainly got me thinking. I haven't sort of thought about the people that are living with contractual situations, you know. And we do have a lot of farm workers and people living in in company owned properties and things. So, just thinking about everybody generally, so they've kind of retired and and they're sitting there right now and they're listening to this and go, gosh, that's interesting.

What should I be doing? Not necessarily people in contractual accommodation, but but people generally, retirees. We talk about people who've already retired. Can you, can sort of as you wrap up this session today, maybe, 3 to 5 tips on maybe what people should be thinking about or doing next. Just 3 or 4 tips.

Guest: Thank you, Lynn. Let's say, for example, that there is a person that had just attained aged 65 and suppose for the moment they are freehold. And they're thinking, hello, that my chance of survival the next 20 years is 1 in 3. And suppose I'm the 1. Those individuals need to be portraying what their life will be at 70, 75, 80, 85, and so on.

Where is money going to go? Let me tell you what that means. How much money should be set aside for funeral expenses? It can be $5,000 today for a funeral expense. My brother died 11 years ago.

The funeral expenses were $18,000. He just won hell of a big party when he passed away. That was his life. He he lived for parties. But let's get back to the subject.

As an individual acting alone, you should be thinking how much money should I put in escrow to cover the events, to pay the credit card, to pay the rates. I got my rates yesterday. $5,500 that need to be paid. The insurance is due $4,400. There's nearly $9,900, $10,000 that's come in in the last few days.

Therefore, as an individual sitting there, just cast your mind for a few moments. How would my widow meet these obligations? Where would the money come from? Alright. I've got money invested with the x y zed bank.

I've got money invested in, share portfolios and so on. But you're liquidating assets to create to pay for those sorts of things, and it's quite popular indeed as long as you're healthy. Healthy means what it says, that you can pass some medical. So at age 65, you think, my gosh, I may need $20,25,000 to pay for the funeral expenses, the outstanding account, the the credit cards, etcetera. I might owe farmlands an x amount of money.

Yep. That's not uncommon to affect a whole of life policy at age 65, but you have to be healthy to be able to get it. Otherwise, your premium will be loaded. B, you will even be deferred, look at it again, or be declined. But I look.

It's an easy document to deal with. The simple documents, a piece of payment. The policy says we promise to pay on the death of the life assured, the sum of $25,000. That means a $1,000,000 and peace of mind for the widow, for the trustees of your estate, and so on. That is what it should be.

And people, once they attain 60, should be looking at their liquid assets, not their home, not their car, not their wedding ring. Just what they have got in liquidity. And my strongest advice is to people that are in that age portfolio is to speak to your adviser. That is an insurance adviser, not necessarily the adviser at the bank, and I'm not just, speaking against that, but a person who's dealing with this and saying, look. Here I am.

I've just turned 60. What do you believe I should be doing? There's nothing wrong with affecting whole of life insurance to provide that instant liquidity in your estate to pay for those contractual obligations that is funeral and credit card and any other contractual obligation I e rates, insurance, and so on. So, Lynn, that's what I'd be doing at at age bracket. Warren, that is really very useful advice.

Host: I'm certainly, taking a lot on today. Thank you very much for, for joining us here at Don't Retire Reinspire. Listeners and lovely reinspirees, This is just the first in many discussions we're going to be having with Warren. So if you've got a question you'd like to ask Warren or, tell us about some experiences that you've had, do feel free to drop us a line. You'll find our email address in the show notes.

Well, until next time, take care and, have a wonderful, week everybody. Thank you, Warren. Thank you, Lyn.