This article was published on 28 May 2016. Some information may be out of date.

Q&As

  • ‘Ripped off’ reader should shop around rather than dropping life insurance
  • How to judge a KiwiSaver fund
  • Start small, and keep going
  • Help for woman with $100,000 in credit card debt

QSome years ago I found out I had a “low factor 5 ” in my blood. I was over 40 when this happened. I am now 56 and in good health.

I currently pay $750 a month for life insurance. I am starting to think I am being ripped off for something that does not affect my health in any way.

I am seriously thinking of cancelling the policy and putting the money into something else — my KiwiSaver perhaps? My wife thinks this is a very bad idea.

I hate the thought of parting with $750 a month for $440,000 in life insurance and an $80,000 sickness payout.

I would really appreciate some advice. My wife is currently undergoing treatment for cancer and our income will be affected by this in the next six months or so.

AI don’t know how “low factor 5” would affect your health. But I do know that you should think hard before abandoning life insurance.

Personally, you would undoubtedly be better off putting your money into an investment instead of life insurance. After all, you won’t be around to benefit from the insurance! But think about how your wife and any other dependants would be placed if you died in an accident tomorrow. It’s hardly surprising that your wife is keen to keep the insurance going.

Of course this ignores what you call a sickness payout. If you find yourself claiming that, you, too, will be glad you stayed insured.

The basic question to ask is: if you died or became disabled, would your wife have enough income and assets — including a home and car — to live comfortably, perhaps for several more decades? Given your wife’s current illness, perhaps there might be limits on how much she can earn in future. Take that into account.

It’s not uncommon for people to realise as they get older that they no longer need life insurance, especially if they have a mortgage-free home and adequate savings. But — according to the insurance industry — many New Zealand families who do need life insurance have no or too little cover. Of course the industry would say that, but they probably have a point.

If you conclude that you do need life insurance, I suggest you shop around. That’s the best way to see if you’re getting a fair deal.

Join Consumer NZ if you don’t already belong, and then search on www.consumer.org.nz for unbiased info on the basics of life insurance, who offers what, and a life insurance cover calculator. While you can get some material on that website without joining, the membership is well worth it. I use it often for guidance on major and even some minor purchases.

And by the way, when applying to insurance companies, always tell the truth about your health. If you lie, you may get away with it until it’s time to claim. But then the policy will probably be declared invalid.

I hope things go well for your wife.

PS I noticed that Consumer NZ has a “50 per cent off” membership deal until May 31. Grab it!

QExamining the latest Morningstar KiwiSaver survey, I notice my provider has performed particularly poorly in the last year in relation to other providers within the same fund type (aggressive).

Whilst I have a healthy appetite for risk and I’m not able to access my KiwiSaver for 35 years or so, it concerns me seeing my provider doing so poorly when other providers aren’t doing so badly.

My provider’s three and five-year returns are good, and so I am unsure of whether I should look to change providers. I know past performance does not predict future performance, but it’s hard to stick in there.

Does switching providers have similar results to changing fund type ie locking in losses? Should I be keeping track of their fund managers and company leadership, or does this have little correlation to investment returns?

ANobody should ever judge the performance of a KiwiSaver or any other managed fund by what happened in a single year.

An aggressive fund invests largely in shares and often some commercial property. These are the most volatile of mainstream assets. There’ll be some years in which all aggressive KiwiSaver funds report losses, and some when they soar — and over the long term we expect their average performance to be higher than in the lower-risk funds.

But in different years, different aggressive funds will rise or fall more. That’s because each fund manager picks different shares and property. And they also vary in the extent to which they sell some investments and hold cash for short periods if they expect the markets to go down.

Also, some funds have small holdings in commodities, gold, silver, derivatives and so on. And some aggressive funds might borrow to invest, which increases risk and potential returns.

For info on how a particular fund invests, see the provider’s website or the KiwiSaver Fund Finder on www.sorted.org.nz. After clicking on your fund in the Fund Finder, read “Here’s what the provider says about this fund” and scroll down to “What’s in this fund”

Ideally, you want a fund that will perform better than average over the long term. The trouble is how do you find it?

You suggested noting the fund managers and company leadership. But firstly, their names won’t mean much to most people. And even if they do, history keeps showing us that the good performers over not just single years but even a decade don’t necessarily repeat that the next time around.

In fact, there’s a tendency for the top performers to do worse than average in the following period. Why? Fund managers that do particularly well tend to be “out there”, doing things really differently and perhaps taking more risk than most. Sometimes it works fantastically well, sometimes abysmally.

So what should you do? Because it seems impossible to get useful information from fund performance, I recommend using the KiwiSaver Fund Finder to help you choose an aggressive fund that charges low fees and offers good customer service. Over long periods, low fees can make a big difference to returns.

You ask whether you will lock in losses by switching providers. Not seriously, if you’re switching from one aggressive fund to another. The two funds should have performed roughly similarly in the recent past.

However, if you move to a lower-risk fund right after a market downturn has hit your higher-risk fund, you will indeed lock in losses, because you won’t be sticking around while the higher-risk fund regains its ground.

That’s why I don’t recommend moving funds in response to market trends. Use the “Find the right type of fund for you” tool in the Fund Finder to work out the right risk level for you, regardless of what the markets are doing, and stick with that risk level.

QI wonder if my experience might be useful to young people.

When I was a young married mother with two toddlers and only my husband to keep us in food and accommodation, I thought to invest in shares would be a wonderful start for us, so I thought I would buy some as a birthday gift for my hard working young husband.

I only had a little money saved, like about $10! You can imagine the grins I got when I asked at the stockbrokers office how much money I would need. And when told, “About $100 at least,” my reply was, “Oh well, I will never have that much”. So my darling husband did not get his gift — at least not that year.

However, some years later — after I was able to earn a little — I had enough money to buy some silver shares which were in the news at the time! Mistake again, I should have bought something NOT in the news!

I wish we had had your column then and I would have learned a lot quicker to spread our money and diversify. Eventually we did just that, and gradually it became a fascinating hobby for my husband and myself too. And with the money we saved we bought as well a couple of rental properties.

We weren’t greedy and we did not worry too much if our shares lost some value at times, but eventually we were able to travel each year and sometimes help our four children and always take an interest in the sharemarkets.

So although I am sorry about young people not being able to buy a house at first, I know they will get there if they have patience and are frugal for a few years. If they keep trying there is a way, it just takes some time!

A post script: I forgot to say that my husband and I travelled quite a bit after we retired, in a modest way. But after he died I have been able to afford to take each of my grandchildren away on an overseas trip when they turn 21, if they so wish. Mostly they find that quite exciting, plus it is a bonding experience for me, which I thoroughly enjoy.

AWhat a wonderful story.

We should note, though, that it’s a lot harder to buy a first home now than when you were young. The ratio of house prices to incomes is ridiculously high now.

Still, your account shows the importance of starting out small and sticking at it. I never cease to be impressed with how some people on relatively low incomes get ahead financially by sheer determination.

QI’m contacting you for some advice regarding my sister who is in her fifties, married, with three teenagers.

She has a debt of around $100,000 made up of overspends on credit cards — bank, stores and Visa etc. She was made redundant last September, having had a good working history with that firm for twenty years or more.

Her husband is paying back two loans plus the mortgage. The debt collectors are calling. They may have to sell their house.

I have heard of organisations (financial advisers?) who help people in this situation by taking total control of their finances, allowing them to hold on to their house and pay back their debts.

Would you know what type of organization would help them? Who would they need to contact?

AYour sister and her husband should contact the NZ Federation of Family Budgeting Services at www.familybudgeting.org.nz. Under “Find a Service” on that website they can find a budget adviser near them.

This is a free service, funded partly by the government and partly by private businesses, trusts and so on. I’ve heard good things about their work. They help turn people’s lives around.

I can’t help wondering, though, why people run up such big debt. It would be great to hear from someone caught up in this — as opposed to others passing judgement on them. How does this happen? Is spending addictive or something?

Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd FSCL, a seminar presenter and a bestselling author on personal finance. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.