This article was published on 5 December 2015. Some information may be out of date.

Q&As

  • A few phone calls can slash hundreds from insurance bills
  • We’re not all bad, says insurance adviser
  • “Freehold” doesn’t mean mortgage-free, and beware of leasehold property
  • Reasons for Auckland house price rise don’t rule out bubble
  • Meaningful Christmas gifts

QI read your item last week on insurance advisers with interest. I have always had an aversion to insurance brokers because of what I perceived as an obvious conflict of interest, but I had not realised quite what a rort and perverse arrangement the current set-up is.

However, you do not need an adviser to make very worthwhile savings on your premiums. We have comprehensive cover (house, contents, and two private motor vehicles) and have been with the same insurer for many years. But some 18 months ago we decided it was time to review our premiums.

We phoned around and got quotes from two other insurance providers, and armed with these went back to our current provider. It turns out we are a “valuable customer” (based on demographic factors and a very low history of claims) who they were very keen to retain, and they more than matched the best alternative quotes we had obtained — all done by telephone.

We ended up reducing our newly quoted annual premiums by 27 per cent (over $700). As I rather suspected, they did try to bump our premiums back up the following year. But, again, a series of emails resulted in them bringing these back by over $400, giving an increase of some 7 per cent on the previous year, which seemed to be reasonably in line with inflation and other changes in the industry.

So, in summary, we have saved more than $1,100 over the last two years on the annual policy renewals initially quoted by our insurer.

As with power and phone charges, the providers do not make it easy. But you can certainly use the competitive nature of the business to your advantage by shopping around and applying a bit of pressure.

If insurers are prepared to pay the first two years of your premium to an adviser for new customers it is obviously in their interests to cut a deal with existing customers to stay with them!

AYou’re mixing types of insurance here. Last week we were discussing life insurance, but you’re talking about cover for homes, furniture, cars and so on — which is easier for people to set up directly with insurance companies.

Still it’s great to get your letter — which I’m sure will lead many other readers to get onto their phones and ring around. The savings you made are surely worth a bit of hassle.

While we’re at it, other readers might want to note that what you do — insuring your home, contents and vehicles with the same company — usually gives you substantial discounts.

On your comment about insurance advisers, read on.

QIn last week’s Q&A on insurance advisers, you said about a report critical of the industry, “But the report rings true to me, in light of what I’ve read and heard over recent years”.

Last week while doing an annual client review I recommended to my client to reduce his existing cover with his current insurance company, to reduce his premiums and reflect his improved financial situation.

His cover has been in place since 2003. I compared different companies’ premiums and benefits, and while his existing cover was not the cheapest or his benefits the best, they still met his family’s needs.

As a member of the Institute of Financial Advisers our code of ethics first principle is “client first”, requiring the adviser to act honestly and not place personal gain or advantage before the client’s interests. I take “client first” seriously.

Your policy churn letter writer seemed to only become unhappy after talking to “another adviser”, even though they received a disclosure statement and a recommendation stating the adviser would be remunerated by the insurance company. They also signed a replacement business advice form explaining the reasons for the recommended changes and the risks of changing policies.

They did not complain to the adviser or the adviser’s disputes resolution service or FMA, but instead wrote to you — which unfortunately discredits all advisers such as myself and unfairly reflects the work we do as professional advisers.

AYou’re assuming that last week’s correspondent was given the correct forms — and that the information was presented in an easily digestible form — which may or may not be the case. Anyway, his letter outlines just one couple’s experience, which doesn’t discredit all advisers but warns readers of what sometimes goes on.

However, the Melville Jessup Weaver report points out that his experience is far from uncommon.

Still, I quoted the report as saying, “some replacement policy activity is good for the customer and should be encouraged.” And you seem to be one of the good guys. It’s great to know that you — and hopefully many others — put clients’ interests first.

More on this topic next week.

Q(From Anne Gibson, Herald property editor). I recently saw one of your people write “my house is freehold”. I think what they mean to say is “my house is mortgage-free”, and I would imagine it would be on a freehold, not a leasehold, site — although the title could be fee simple (most common), cross lease or unit title.

Many people say they have a “freehold” property and it really irks me.

What they actually mean is they have property that is debt or mortgage free. Let’s clean up the language and say what we really mean. Let’s try to get this right. Most people do not know what “freehold” means and I hope they never do. Only those (in many cases) victims of leasehold land are familiar with the brutal realities of the situation and know the difference between freehold, leasehold and debt-free.

The danger of leasehold land is lack of control. An annual rent which might seem entirely reasonable to begin with can balloon because of spiralling property values. Suddenly the $2000 or even $20,000 a year can become nearer $100,000 a year, making your investment potentially utterly worthless. Witness empty leasehold sites where houses were allowed to fall down, if you don’t believe me.

Always try to buy freehold fee simple titles: anything else can turn out to be a nightmare. A peaceful night’s sleep is so important for our health and wellbeing.

AThanks for the warning.

As for the language, I’ve been careful for years not to say “freehold” for “mortgage-free”, but not all readers are aware of the difference. And I don’t like to change readers’ letters much unless it’s to make them clearer, or to shorten them when space is tight.

But now everyone knows: beware of “leasehold” when it comes to buying property and “freehold” when it comes to language.

QMy pick is Auckland’s property prices won’t collapse. They may come back a bit but then sit on a plateau for a while. It all comes back to supply and demand. Auckland property will always be in demand and prices will remain high.

I started investing in residential properties in the late 1970s in Wellington. You could buy properties for 20 per cent below government valuation. Now I would call that a bubble burst or even a crash.

And the reason why? In the early 1970s Wellington City Council embarked on a massive programme of building blocks and blocks of council flats. They also developed large residential sub-divisions on hillsides and ridgelines around Wellington. They flooded the market. I can’t see that happening in Auckland any time soon.

Now there are too many regulations and costs that are restricting the number of new builds. I have just built my mother a new garage, knocked down her old carport etc. It cost her $8600 just to get permission to start work! Architect, engineer, resource consent and building consent. Now you have to be a licensed designer even to design an uninhabited garage.

Get used to high property prices.

AI think you missed my point last week. Every time prices of property or shares rise really fast, people come up with reasons — just as you and many others have done for the Auckland housing market.

The reasons are logical. But nobody can tell how much of the price rise is caused by demand exceeding supply, plus too many regulations, and how much is psychological or panic buying. People think, “These prices are silly, but I’ve got to get into the market before they get even sillier.”

A friend watched an auction last weekend where a very ordinary Auckland house, with signs of damp in the lower floor, sold for $1.3 million. The woman who won the auction was crying, and it didn’t look like tears of joy. Perhaps, my friend thought, the woman suddenly realized the debt she was entering into.

Scary stuff. There’s no way I would buy in the current Auckland market.

It pays to keep in mind the most dangerous sentence in investing: “It’s different this time.”

MEANINGFUL CHRISTMAS GIFTS

Many charities offer Christmas gift programmes. You buy items for people in need that are given on behalf of your family or friends. For example, you might donate money for school equipment for children in developing countries. You receive an acknowledgement to give to your relative or friend to show what they have “donated” to the children.

It makes a great Christmas gift — more meaningful than buying stuff for one another that is often not wanted.

Each year, this column runs a list of charities that take part in these programmes. I’ve asked each one to describe their programme in 20 words or less:

  • Caritas Aotearoa New Zealand: 0800 22 10 22 or www.caritasgifts.org.nz. “Caritas Gifts of hope, life, peace and learning enable our life-changing work around the world and in Aotearoa New Zealand.”
  • ChildFund New Zealand: 0800 223 111 or childfund.org.nz/catalogue. “Choose chickens, bikes or edible trees — give families the opportunity to break free from poverty with Gifts that Grow.”
  • Christian World Service: 0800 747 372 or www.gift.org.nz. “Double Your Giving: once to a friend or loved one and once to a family in need of a hand.”
  • Leprosy Mission New Zealand: 0800 862 873 or www.reallygoodgifts.org.nz. “Delight your loved ones with Really Good Gifts this Christmas, and bring God’s love into lives affected by leprosy.”
  • MEND: Mobility Equipment for Needs of Disabled. 021 0435 901 or www.mend.org.nz. “Help MEND provide life-changing support to disabled people needing corrective surgery, mobility devices and hearing aids!”
  • Salvation Army: www.salvationarmy.org.nz/justgifts. “Thank you for your support. Through Just Gifts you help provide better living conditions, education, and medical and health care.”
  • Save the Children New Zealand: 0800 167 168 or http://shop.savethechildren.org.nz. “You can help families earn a living, or ensure children receive education, healthcare, toys, food or clean water.”
  • Tearfund: 0800 800 777 or www.giftforlife.co.nz. “Tearfund’s Gift for Life; an exciting range of unique charity gifts including goats, seeds and water filters.”
  • The Fred Hollows Foundation NZ: 0800 227 229 or https://www.hollows.org.nz/gift-of-sight. “Give your loved one a Gift of Sight card and help restore sight to someone for $25.”
  • World Vision: 0800 24 5000 or www.worldvision.org.nz/smiles. “This Christmas choose a life-changing Wondergift to make everyone Smile.”

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.