Insurance

When you set out to protect yourself or your business against life's risks there are many options available for you to consider. There are two broad areas of risk protection provided by insurance: Life Insurance and General Insurance.

Life Insurance covers a particular person against the risk of death, disablement, trauma, injury or illness.

General Insurance covers particular assets of yours or your business against a variety of risks including fire, theft, inundation, storm and tempest, vandalism, accidental damage, fusion, third party property, professional negligence, and many more. Cover can also be obtained to protect against particular eventualities such as inclement weather.

There are some crossover areas of risk insurance where general insurance provides cover against harm to the life of third parties or employees. These cross-over areas include third party injury, public risk and workers compensation.

Lending

The standard Bank Home Loan that is predominantly offered in the market today is referred to as a Term Loan.

Term Loans are generally for a specified period like 25 or 30 years. The contract obligations are for monthly payments made up of principal reduction and interest. Interest rates can be variable or fixed or have a cheap entry rate reverting to the variable rate after an initial period. Interest is generally charged daily and paid monthly in arrears. Mostly, these accounts are flexible in that extra payments can be made so as to reduce interest paid and the loan term.

The market is varied in rates offered. The size of the loan, the profession of the borrower and the income earned by the borrower can influence the rate offered. Some banks will offer a discounted rate in exchange for a higher annual fee. Monthly account keeping fees are applicable and again can vary depending on the overall package offered to the client.

• Interest is geared towards the front of the loan.
• Australian Bureau of Statistics has the average time people own a home for is 7 years.
• Australian Bureau of Statistics has the average home loan running for 4 years in length.

If the customer moves within the first 4 to 7 years, then they have paid mostly interest with minimal principal reduction

Term Loans

This term loan applied to the above scenario is very profitable for the banks.

When borrowers either borrow extra money or they sell their home and buy another, most banks insist on closing the existing loan and starting over again on a 25 or 30 year term. Not only does this incur extra fees like BREAK COSTS on the old loan and new acquisition costs like application fees and stamp duty on the new loan, it also means that the borrower has to start all over again on a new loan term and pay the higher interest proportion on the repayments.

The Banks also encourage a fragmented approach to money management. They encourage borrowers to have separate savings accounts, credit card accounts, personal loans and home loans. All at different rates and all are incurring fees.

Australia is a small country and what makes us unique in the world is that more than 80% of the current home loan market is with the major 4 banks.

This strong national presence has a major influence on the way home loans are marketed. Turn the TV on, look in a newspaper or listen to the radio. They barrage the market offering this type of loan to the market.

Cheap entry rates for 6 months or 12 months, discounted variable rates, lower fees for limited offers are all advertised to get people to take out this type of loan.