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The lowdown on the lazy tax – and how to avoid paying it
There’s a lot of advice out there around how you can save on your living expenses – from frugal budgeting to cutting back on that smashed avo at your local cafe. But the biggest savings can often be made on avoidable expenses such as the ‘lazy tax’.
What’s a lazy tax you ask? We speak to an iSelector with years of experience on the matter to help put things in perspective for you.
The lazy tax in a nutshell
“The lazy tax is the money many Australians are losing simply because they can’t be bothered shopping around,” says Laura Crowden, iSelect’s Corporate Affairs Manager.
“Obviously, it’s not an official tax – it’s the price you pay for staying with the one provider for too long and not doing your research about what’s out there. It applies to a range of services – health insurance, energy providers and banks, to name a few.”
Loyalty doesn’t pay
In rapidly changing marketplaces, companies are furiously competing to attract new customers. If you haven’t looked at special offers from different providers recently, or simply don’t know where to start, you may not be getting the best deal.
Some people, particularly older Australians, stay with their existing insurance, utilities or finance provider because they believe their loyalty will pay off. However, the industry just isn’t geared this way.
“Unfortunately, for a lot of those categories, there aren’t loyalty incentives for long-term customers and it pays to see what else is on offer on a regular basis,” Laura says. “Your loyalty might not be reciprocated by your provider.”
How can I find out if I’m paying a lazy tax?
To work out whether there’s a better deal available, consumers need to be across their current expenses. “Make sure you’ve got copies of your energy bills and you have a clear idea of your usage and statements,” Laura says. “That way, if you approach someone for help, you’re having an informed conversation and you can compare what’s out there now to what you’re currently paying.”
Another common trap across many products is auto-renewal. “A lot of people will get their bill or their renewal notice, and they might think about changing but put it off,” Laura says. “Then the due date comes and they just think, oh well, I’ve got to pay it now − and then you’re stuck for another year.”
When you get your next renewal notice or premium increase, use it as a prompt to investigate whether there’s a better deal out there. People who leave it to the last minute are likely to make a decision under pressure or miss opportunities.
Avoid the too-hard basket
The confusion surrounding more complex products, such as health insurance and home loans, can be overwhelming. There are many variables to consider, and the fear of incurring new waiting periods with a different policy can be off-putting. This is why changing providers is often a task that’s thrown into the too-hard basket – where it stays indefinitely.
Changing your home loan provider is possibly one of the most daunting switches – but it’s not as difficult as you might think. “People get quite particular about their home loan,” Laura says. “But when you think about it, it’s actually debt – you’re not going to be able to shake it, no matter who your provider is.” So, you may as well shop around.
There’s little incentive to stick solely to the big four banks for loans and mortgages, and no reason to have all your products with the same bank. “Sometimes there’s an administrative benefit,” Laura says. “There’s less hassle in having fewer providers, and they might all be connected and accessible from the same login point − but financially speaking it might be worth tailoring your products individually to your different needs, and a number of different providers might be better for that purpose than the one.”
Track where your life is at
Many people pay for insurance extras they don’t use, or are insured against risks that don’t apply to them. For example, you might not have tailored your policy when you moved house, had more kids, or developed a health condition that requires medical treatment. Maybe you’re empty nesters who’ve inherited a generous broadband plan that hasn’t been used much after your kids left home.
“Any change in life circumstances should prompt a re-evaluation,” Laura says. “This is not to say any of these products are a waste of money, but it’s always a waste if you’re paying more than you need to.”
Cancellation fees and rate increases
Cancellation fees are something you should consider before switching, but they often pay themselves off in the long run. “With something like a mortgage, if the cancellation fee is $500, but in a year you’re going to save $1,000 in interest, and over 30 years you’re going to save $30,000 in interest, it’s a no-brainer,” Laura says.
Another issue that’s often part of the cancellation process is the admin and paperwork many people associate with ‘breaking up’ with their old provider. It’s possible to avoid these hassles if you use a comparison service such as iSelect – you might not even need to have a conversation with your old provider.
When you decide to switch, make sure to get your timing right. “Be aware of the billing cycle and the method of billing of the new provider so you don’t get caught short at the wrong end of your pay cycle,” Laura says. But then again, there’s probably not just one right time to change. “No-one can predict a rate rise… premiums and interest can obviously rise at any time – but then your existing provider is probably going to raise rates as well.”
It’s important to keep a close watch on your bills and usage across a range of services. Each time your life circumstances change, assess what you need and what you don’t.
With some forward planning, you can probably afford that smashed avocado guilt-free, knowing you’re not paying the lazy tax.
iSelect does not compare all products in the market. Not all products are available at all times.