The catastrophic damage caused by extreme rain and storms events in NSW and Queensland during March 2022 is a timely reminder to all Australians who are fortunate enough to own their own home and/or investment property to suitably insure them.
Just to offer some context about the latest weather events, it’s been reported by one of Australia’s largest insurers that they have received an additional 45,000 claims (over and above normal levels) arising from one event earlier this year. This has required them to establish a specially dedicated department and to employ many additional staff to clear the backlog. They estimate this process will take many months, but at least it appears that most of the claimants will be covered.
Of course, you can choose to take a chance and decide not to buy insurance (unless your lender requires it). However, as many people will testify who have lost their uninsured homes in recent years as a result of the increasing incidence of fire and flood, failure to insure may lead to serious personal financial hardship, even bankruptcy and (in the ADF context), potential loss of security clearance and employment…not a smart decision when the problem can be so readily avoided.
Here are a few points to consider when buying insurance:
Most people have little idea of the cost of rebuilding and of the value of their contents. You might be surprised (even astonished) to know just how much building costs have risen in recent decades, so before you nominate an amount, consider getting a professional valuation or estimate for insurance purposes;
Insurance companies sometimes offer the option of choosing “replacement cover” or a “sum assured” within a particular range that they nominate. Before choosing, read the policy document and understand what these terms mean. “Replacement cover” may be more advantageous, but it is likely to cost more, so understand its meaning and balance that against any additional cost;
Understand your coverage for the replacement of items such as jewellery or appliances. Is it “new for old” or just their second hand value at the time of the event? Check the coverage limits on individual items in the policy. For example, there might be a limit of, say, $500 on each appliance or a limit of, say, $1,000 on each item of jewellery. Especially in the case of jewellery, this may be overcome with the agreement of the insurer if you individually identify and professionally value the relevant items at the time you purchase the insurance and thereafter on a regular basis;
Check what is not covered by the policy. Typically, this section of the policy document is called “What we won’t cover” (or words to that effect) and the list is usually a long one. Technically, these are called “exclusions” and they can cause unpleasant surprises at the time a claim is lodged with the insurer. Examples of possible exclusions include water damage due to poorly maintained drains, dodgy electrical connections and theft of property due to lengthy absences from the premises, for example, whilst on ADF deployment. Any problem with the latter can usually be overcome by advising the insurer about the circumstances of your absence, including steps you will take to have your property secured and inspected in your absence. On the matter of avoiding damage in the first place, here’s a helpful tip….the insurance industry advises that sub-standard and corroded flexible hosing under sinks in kitchens and bathrooms are notorious for bursting under pressure, causing expensive and extensive water damage, so having these checked regularly by a licensed plumber is surely a better option that having a lengthy dispute with an insurer about who is responsible for the replacement of your destroyed kitchen;
Understand the initial amount you will have to pay in event of a claim. This is called the “excess”. It’s usually between $500 and $3,000. In order to reduce the annual premium, you (“the insured”) can usually increase the excess at your discretion when the policy is renewed. Should you decide to increase the excess, note the amount by which the premium reduces as the excess grows. Sometimes, it’s not an obvious decision because the premium might not fall all that much. In the end, it’s a balancing act between your desire to lower the annual premium vs your willingness to pay the first, say, $2,000, of any claim. Be careful here because you may find that your excess becomes so high that you end up paying 100% of the cost of every small claim you make; and
An insurance policy is a legal contract between you (the “insured”) and the insurer. The terms of most insurance policies are complex, full of legal definitions and wordy exclusions. When you make a claim, the first thing the insurer will do is to assess whether your claim is within the terms of the contract. The insurer may also ask you to pay the excess which should be refunded later should the claim be unsuccessful. The point here is that policy documents vary considerably and it’s your responsibility to understand the terms of your coverage and its limits. The reality is that some policies are better than others and it’s often a smart idea to pay a bit more to get exactly what you need. However, it’s up to you to work out which policy best suits your circumstances. So take your time and do your homework in order to avoid disappointment when you need to make a claim.
If you’d like to learn more about insurance, a good place to start is www.moneysmart.gov.au. You can also go to a comparison website or to an insurance broker (www.needabroker.com.au), although when you do, understand how the site/broker is paid and by whom. This may (stress may) have an impact on the advice you receive. If ever you have a complaint, go to the insurer/broker first, and if it’s not resolved satisfactorily, consider going to the Australian Financial Complaints Authority at www.afca.org.au
Super can be much harder to quantify if you are a member of MSBS or DFRDB, known as defined benefit schemes. This is because the bulk of your super benefit will likely be in the form of a lifetime indexed pension, based on your years of service and final average salary. The longer you stay in Defence, the larger your lifetime pension. This cannot easily be compared to a standard accumulation super fund. Please contact the Commonwealth Superannuation Corporation (CSC) for an estimate or your current benefit.
If you have an accumulation super fund, like ADF Super, it’s much easier to compare the superannuation you get from Defence with that of a civilian employer. Generally employers pay super at a rate of 9.5% of your ordinary salary and allowances, Defence pays super to accumulation fund members at a rate of 16.4%, well above the minimum requirement.
You may not appreciate the value of your generous superannuation benefits now, but you certainly will in years to come.
ADF members receive, statutory death and invalidity cover, and rehabilitation services if needed. To replace this cover in civilian employment, you may need to take out personal insurance, such as death, disability, trauma and income protection. The cost would depend on your age and personal circumstances but could cost thousands of dollars a year.
The ADF offers free education and training and/or study assistance schemes. If you’ve been receiving tertiary education at no cost or received any form of study assistance, consider what it might cost to continue your education outside Defence.
Take some time to think about these and any other benefits provided to you by Defence to get a better understanding of the real value of your employment package.
As an ADF member you will usually receive subsidised housing or rental assistance if you are not living in your own home. If you buy a home to live in you may be eligible for a range of other assistance schemes.
If you are receiving rental assistance you can calculate the value by multiplying the fortnightly assistance amount by 26 to get an approximate annual benefit.
If you’re in service housing you can estimate your benefit by deducting the rent contribution taken out of your pay, from the amount of rent you would pay each fortnight for a similar property in the same area. Multiply the result by 26 to estimate your annual benefit.
Housing assistance schemes for members buying a property include the Defence Home Ownership Assistance Scheme (DHOAS), Home purchase assistance scheme (HPAS) and Home purchase or sale expenses allowance (HPSEA)
Serving ADF members receive a range of healthcare benefits, including free medical and dental treatments, rehabilitation services, psychological support and access to fitness facilities like gyms, pools and sporting fields.
To put a value on these benefits, think about what you might be paying for if you were not an ADF member. For example, what would it cost you for private health insurance, prescriptions, physiotherapist, dentist, specialist visits, gym membership or other fitness related costs?
Medicare covers the costs of being admitted to hospital as a public patient, some of the fees charged by GPs and other medical professionals, and subsidised prescription costs for medicines listed on the Pharmaceutical Benefits Scheme (PBS). ADF members don’t pay the Medicare levy, currently 2% of taxable income.
Private health insurance covers some or all of the cost of a range of services not covered by Medicare, for example, a private hospital and the doctor of your choice, as well as ancillary services such as dental, optical and physiotherapy, not covered by Medicare.
Your pay consists of a base salary, with the addition of employment-related allowances. Your base salary can be found at the top of your payslip on the right, listed as ‘Annual salary’. If you need help reading your payslip, see the ADF guide on Pay and Allowances.
Note: From 13 May 2021, service, trainee, reserve and uniform allowances will be rolled into a single ‘Military salary’.
The earnings section of your payslip lists any allowances you receive. The amount in the ‘Current’ column is the amount you get every fortnight for each allowance. You can add allowances by typing in the name of the allowance in the ‘Add allowance’ box and clicking the + symbol.
A deployment provides some ADF members with additional allowances that are not part of regular pay. We have not included these allowances in the calculation of your remuneration package, however, you may want to take the additional deployment allowances into account if you are comparing your ADF remuneration with civilian employment.
Medium-term goals are those that you want to achieve in 3-6 years. This could include saving for a home deposit, paying off your car or paying down all your loan debts. Having a budget and your goals written down.
Long-term goals are plans you want to achieve in around 7 years or more. This could include buying a home or paying off your mortgage, paying for your children’s education or saving for retirement.
For long-term goals think about investing some of your money. Get some financial advice to work out a good investment strategy to reach your goals.
Be financially fit from ADF Consumer Centre on Vimeo.
MSBS is a hybrid defined benefit and accumulation super scheme which closed to new members on 30 June 2016. If you are an MSBS member, your benefit will consist of a lifetime indexed pension (employer component) based on your final average salary and years of service. Some or all of this benefit can be taken as a lump sum when you have met a condition of release (the defined benefit). The scheme also has a member component made up of your compulsory and voluntary personal contributions, ancillary contributions and investment returns, that you will also receive as a lump sum when you have met a condition of release (the accumulation benefit).
The pension component can be taken from age 55. If you are retiring or resigning from the ADF after reaching age 55 or are entitled to a Class A or Class B invalidity pension, you will be eligible for a pension when you leave the Service. For all other members, your employer benefit will freeze and be preserved, increasing with CPI each year, until you are eligible to receive it.
The member component of your benefit may be left in MSBS, where it will increase with investment returns each year until you access it, or it can be rolled over to another complying super fund.
For more information contact the Commonwealth Superannuation Corporation (CSC).
If you joined the ADF for the first time after 30 June 2016, you will fall under the ADF superannuation arrangement, and will be a member of an accumulation fund, such as ADF Super. If you had previously served, and are a member of MSBS, you will be re-entered into MSBS on rejoining the Service.
For accumulation fund (eg. ADF Super) members, your benefit will be a lump sum based on contributions and investment returns. When you leave Defence, your money can be left in the fund, where it will continue to grow with investment returns until you meet a condition of release, or it can be rolled into another super fund.
If you’ve been in the Service for more than 12 consecutive months, you can keep your ADF Super account when you transition out and your new employer can contribute to ADF Super. In this case your insurance cover will change so contact the Commonwealth Superannuation Corporation (CSC) to find out what you need to know.
DFRDB is a defined benefit super scheme which closed to new members on 30 September 1991. If you are a DFRDB member, you will receive a lifetime indexed pension based on your final salary and years of service. Part of your benefit may be commuted into a lump sum, and you may receive an additional lump sum from your MSBS ancillary account, made up of voluntary personal contributions, amounts transferred in from other funds and other contributions, plus investment returns.
For more information contact the Commonwealth Superannuation Corporation (CSC).
Short-term goals are things you want to achieve within the next couple of years. These goals could be to pay off your credit card debt, buy a new TV, go on a holiday or buy a car. Whatever you have in mind, set yourself a realistic timeframe. The best way to save for short-term goals is to reduce your spending on non-essential items, like entertainment, dining out, memberships or subscriptions. It is often easier to stay on top of your spending if you use cash, EFTPOS or a debit card when shopping instead of using your credit card.
Make your savings work for you by putting your money into an account where it will grow. Savings accounts are great because you can earn compound interest on your savings. If you’re on a low income, you may qualify for one of the savings programs offered by some charitable organisations.