A Barefoot Approach to Insurance: HostPlus vs The Rest
There are many different types of insurance that are on offer in the market, but not all of them will be right for your needs. If you're looking for a Barefoot Investor-style approach to insurance, HostPlus might just tick all the boxes!
In this article, we'll look at the HostPlus insurance offering and see how it compares to other products on offer in the market.
1. Why is insurance so important
Insurance is important because it can help protect your family, home, and assets from unexpected events.
It's worth investing time researching what type of insurance you need before making any decisions about which product to go with.
HostPlus industry super fund offers a range of different types of insurance that will be more or less relevant depending on how old you are, what your family situation is, and what assets you have.
Insurance providers may offer similar products but they won't all be right for your needs - so it's worth spending some time researching.
A lot of people think that insurance is nothing but an expense, and would rather do without it if they can afford to. This may be true in some cases (home contents) but most types of insurance are worth keeping for the peace of mind alone - not least because you never know when you'll need them!
Insurance provides protection from the unknown and should be incorporated into your personal wealth-building strategy. Think of it as an “essential investment” that complements other strategies you may have to save money on taxes, limit financial risks, or just have a little extra cash for those emergencies that crop up.
2. Who is HostPlus super funds?
HostPlus is one of Australia's biggest superannuation Trusts. They are an industry super fund with more than $52 billion worth of members' funds. HostPlus is also one of the country's largest life insurers - and according to The Barefoot Investor, they offer some pretty good insurance products too!
The insurance cover offered by HostPlus is underwritten by TAL Life Limited who is an Australian life insurance company. TAL have been around for over 150 years and in 2020, paid $2.7 Billion in claims
3. How does the cover work with HostPlus?
Joining HostPlus is as simple as filling out a form or registering online.
Once you have joined HostPlus, you will have the option to apply for the default level of insurance cover and often this requires limited or no underwriting (which is the process of being medically assessed by the insurance company)
HostPlus offer a number of different insurance policies:
Income Protection Insurance:
Does HostPlus have Income Protection? Yes!
This benefit covers you for a percentage of your income should you be unable to work due to injury or illness, up to 75% in some cases.
This is designed as long-term protection and starts paying out when the insured person has been off work for a period of time known as the waiting period.
Life Insurance:
This benefit pays a lump sum to your loved ones in the event of your death or terminal illness (which is when you are given a life expectancy of fewer than 12 months).
Total and Permanent Disability Insurance (TPD)
This benefit pays a lump sum if you're unable to work because of an illness or injury and two Dr's determine that you will never be able to work again.
TPD has two broad definitions being "Own Occupation TPD" or "Any Occupation TPD".
As the name suggests, Own Occupation looks at whether or not you can ever return to work in your own occupation.
Any Occupation TPD is a little broader as it looks at whether or not you can ever return to work in any occupation that you are qualified for by education, training, or experience.
The TPD cover within HostPlus is the Any Occupation definition for their insurance policy.
For each of these cover types, you can choose from a default level of insurance cover or choose to tailor it to your own specific details.
4. Why should I choose HostPlus super funds for my insurance needs
HostPlus personal super is a Society that has been around since 1983 and we have grown to be the second-largest not-for-profit superannuation fund in Australia.
As previously mentioned, the insurance cover issued by Host Plus is underwritten by TAL who is one of the largest insurance providers in Australia.
In 2020 alone, TAL paid $2.7 Billion in claims.
If you have your superannuation with HostPlus, having the insurance cover with HostPlus personal super does allow for this all to be in the one place and can be facilitated simply by contacting HostPlus directly (meaning you would not need to go through a third party like a financial adviser).
There are some downsides to this that can see you retaining an inferior product that can sometimes cost more than other policies in the market for the same level of cover.
Check out this video for more information.
5. How Does The Barefoot Investor's Multiple of Salary Method Work?
The Barefoot Investor advice is to use the multiple of salary method for working out a rough idea of how much insurance you should have for your life insurance & TPD.
The multiple of salary method is a very common rule-of-thumb used by other "celebrity" financial gurus such as Dave Ramsey over in the US.
This method suggests that you multiply your income by ten to determine the level of insurance that you need.
When I was researching this, I could not find any research showing why or how this multiple had been selected or suggested.
I recorded this video detailing my findings which to me highlight why this works over in the US but not so much here in Australia.
If you are just starting out, this method is got to give you a ballpark idea of the insurance coverage you should have but my suggestion is to do some further research to make sure that this suits your personal circumstances and needs.
6. The benefits of choosing to go Barefoot with your insurance provider
The Barefoot Investor suggests HostPlus personal super plan in his book mainly due to the low fees that HostPlus charges for being a member as well as the balanced index fund that The Barefoot discusses in his book.
If you have read The Barefoot Investor, it is likely you are considering the multiple of salary methods for calculating how much insurance cover you need (for my thoughts on the reasons this method can leave you with too much cover *check out this video*)
The Barefoot Investor is not a huge fan of Financial Advisers who get paid via commission. By using HostPlus for your insurance cover, you can organize this directly with HostPlus and not have to use a third party.
Whilst you may consider this a benefit, bear in mind that doing this would mean that you would only be offered the cover issued by Host Plus with no consideration for any other policies available in the market. Some of which could provide benefits greater than the HostPlus insurance based on your personal needs.
My suggestion is first to grab a quote with HostPlus and then compare this against policies from other providers.
You may find that HostPlus can provide the right cover for you at a price point that is competitive with others or alternatively you may find that there are other providers who can provide a better cover at the same or lower price point.
Ideally, you would like to find an insurer that has competitive premiums and a quality product - that is the ideal situation.
7. The drawbacks of this type of insurance
As the Barefoot Investor mentions, HostPlus is one option available to you and they claim to provide simple, affordable cover.
Whilst this may be all you need from your insurance provider it does not make them a comprehensive option for everyone. In my experience, most people could benefit from at least comparing the insurance cover offered by HostPlus with the same level of cover with the market.
One of the major concerns customers express is that if they look at other providers, their insurance premiums might not be paid for out of superannuation. The good news? This isn't a problem.
If you're considering joining HostPlus super funds or you are already a member, your membership enables the flexibility to choose from a wide variety of insurance providers and still have all premiums paid from your HostPlus personal super plan.
Most of the time when I explain this to people, there is then no reason not to at least compare the insurance being offered to you as a HostPlus member against the cover available to you in the broader market.
Does HostPlus charge you fees to pay premiums to other insurance companies?
No, HostPlus does not have any exit fees meaning that you are not penalised for choosing an alternate provider.
In addition to this, because the premiums are funded via what is known as a premium rollover, the insurance company applies the tax credit to your premiums and only sends a request for the nett premium amount meaning you get the same tax benefits.
8. How does it compare to other providers?
When comparing HostPlus insurance to other providers there are two main things to consider:
How does it compare on price?
There are far too many variables to make a blanket statement when it comes to how HostPlus insurance cover compares to the market.
The only way to know for sure is to get some comparative quotes.
Once you have a quote with your HostPlus personal super plan, try some other online insurance quoting tools (such as Lifebroker or NobleOak) to see how the quote you received from HostPlus for insurance cover compares.
If you do not want to do this part of the process yourself, this is where a financial adviser can help by comparing these quotes for you.
There is one thing to be mindful of when comparing prices. Some insurance companies (such as HostPlus insurance) quote their premiums nett of tax where other providers will be gross of tax. Make sure you are either comparing nett with nett or gross with gross for a fair comparison.
How does it compare on quality?
Like anything, price is not everything. The other important factor o consider when you are purchasing insurance is the quality of the insurance cover.
The way the quality of an insurance policy is determined is by looking at the underlying benefits and policy terms that are contained in the policy.
There are research providers that have software to compare these policies, we use a company called IRESS. This is not something you would be able to do personally and is again a reason you may wish to seek help from a financial adviser.
If you want to try and do this yourself, you would need to get the Product Disclosure Statements from multiple insurance companies and compare them manually.
This is no easy task.
How does HostPlus compare on claims?
The most important part of any insurance policy is how they handle claims. ASIC brought out a research paper that looked at the insurance company as a whole particularly relating to claims.
In this paper, ASIC found that irrespective of which channel you have purchased your insurance from (group/industry fund (like HostPlus), direct insurers (like what you see on daytime TV) or via an adviser known as retail policies), more than 90% of all submitted claims are paid successfully.
9. The cost and how you can get a quote
To determine the cost of your insurance cover the easiest way to do this is to jump onto the HostPlus website and follow the links to the insurance calculator.
Given the number of variable factors that go into determining the price of insurance cover, doing this step is the easiest way to know what the pricing will be for you.
As a rule of thumb, we generally suggest that you look to spend no more than 3 - 5% of your gross family income on insurance. This too can vary but can be used as a bit of a guide.
There are other places to get insurance quotes for comparative purposes which you can do yourself. Check out Lifebroker or Noble Oak for some alternate options.
NB - Lifebroker is also owned by TAL and whilst it does offer quotes from multiple insurance companies, it is important to know whom they are owned by.
Noble Oak is a direct insurer and offers less flexibility when it comes to payment/ownership structure (super as having cover through super) but it is good to get an idea of how the quotes with HostPlus compare).
The final option is again to contact a financial adviser.
If you were to contact me asking for a quote, this is not something I offer without a deeper understanding of the reasoning behind the insurance cover itself as I feel this is the most important thing to get right.
10. Questions that you may have about going barefoot, answered by an expert on the subject matter
Does HostPlus charge for insurance advice?
If you contact HostPlus to discuss your insurances, you can speak with the call centre who are able to provide you with general advice on the products available to you with your account.
If you require personalized insurance advice, HostPlus do have a number of employer Financial Advisers who charge a fixed fee (which will be quoted before any work is to be completed) for providing you with what insurance types and amounts you should have with your fund.
Should I use a HostPlus adviser or an adviser external to HostPlus?
Advisers employed by HostPlus are limited to providing advice to you regarding the HostPlus fund where external advisers could compare the broader market.
Are there any personal insurances that HostPlus don't offer?
HostPlus offers Life (death cover), TPD & Income Protection. You are not able to obtain Trauma Insurance from HostPlus if this is something that you are looking for.
Should I choose the fixed or the unitized insurance cover?
This will depend on your personal circumstances. For more information about this, watch the video where I talk about it in further detail:
Is the multiple of salary method a good way of working out how much Insurance I should have?
In my opinion, the multiple of salary method should be used as a starting point but it does not factor in all of the information you need to ensure that your cover levels are enough.
This often leads to having too much insurance and not being able to review this as your needs change
Check out this video for more information.
Is the HostPlus Income Protection insurance an Indemnity or Agreed Value contract?
The income protection insurance with HostPlus is an indemnity contract.
All new Income Protection insurance policies post 1st April 2020 are indemnity contracts following legislative changes.
If you have existing Income Protection insurance you may have Agreed Value benefit if you applied for your policy before this date.
Before changing, make sure you check if this benefit is relevant to you.
Conclusion
If you’re a Barefoot Investor reader, it is likely that you are considering HostPlus for your insurance or have your insurances with HostPlus already.
As we mentioned in the introduction to this article, HostPlus does offer Life, TPD and Income Protection insurance however if you contact them directly there is no way of comparing what they cover against what else might be available in the market.
Even if you have your super balance with Hostplus, you can apply for any other provider and still have this paid easily from your HostPlus account.
Want to know how much life insurance coverage is appropriate? Check out my free calculator here.