With rising interest rates and inflation increasing costs, many people are looking at searching for ways to reduce their spending. Insurance is an area of spending that is often looked at and many people just cut it all together, with disastrous consequences if they need it soon after as it would have been in the case of Megan.
Megan* called me one day to cancel her income protection and trauma insurance because the premiums had gone up. We talked through the issues and we made some changes to the policy that reduced the premium but allowed her to keep the cover. One month later Megan was diagnosed with a 19 cm cancerous tumour which meant she had to take considerable time off work for treatment. At which point she rang me very glad she hadn't cancelled her policy. We helped her make the claim which gave Megan income during her treatment and $100,000 to pay for all the medical expenses.
There are a variety of ways to reduce premiums which need to be considered as part of your whole circumstances.
Below are some ways to reduce premiums
Increase the waiting period on your Income Protection
This waiting period is the time it will take before you commence receiving benefits. It is important to weigh that with the level of sick leave, annual leave, cash reserves, and accessible superannuation you have. But changing the waiting period from 30 days to 90 days could reduce the premium significantly.
Reduce the benefit period
The benefit period is the time the insurer will pay your insurance for. Generally the options available are: 2 or 5 years or to age 60/65/70. If you have a policy that pays to age 65, it may be able to be reduced to a 5 year benefit period. This may dramatically reduce the premiums (depending on your circumstances). You may want to consider other insurance to cover the gap between 5 years and age 65.
Own the insurance inside superannuation
Income Protection can be paid for directly from your cash flow (tax deductible) or from your superannuation. Owning inside super can reduce the impact on your disposable income but it will also reduce your retirement savings. There are also definition factors that need to be considered.
Reduce the level of cover
Income protection is based on a percentage of your salary, generally around 70%, however you could lower your cover amount, if there is a significant gap between your living expenses and your salary. Alternatively, you could reject the annual increase which is likely to lower the annual premium increase.
Some income protection policies will allow you to pause the premium for up to 12 months and pick it up again without underwriting. If things are really tight, then this benefit could be accessed to hold onto your insurance ready to recommence it when cash flow returns to normal without having to go through underwriting.
If you have a high savings amount and would be willing to downsize your lifestyle and home, you may be able to self insure a significant portion, if not all, of your income and reduce your premiums. As with everything there are sacrifices and benefits with this that need to be considered when reviewing your insurance cover.
When we make recommendations for someone to take out Income Protection insurance we consider your circumstances and structure the policy(ies) to achieve an outcome that fits within your budget but also provides the level of protection that you need.
If you don't have Income Protection insurance and would like to be protected and save money today, contact us and book a meeting in to save 15%^ on your 1st year's premium.
Contact us today to have a free confidential chat about your insurance needs.
Want to know more, see what is involved in taking out insurance in our 5 steps to protecting your income post below.
* Not her real name
^ An approximate reduction in the premium. We will discount 50% of the commission we receive which is can range between 27% and 33% which equates to a premium reduction range of 13.5% and 16.5%.