A Guide to Altering Your Insurance Policy

You are in control of your insurance policy. As your circumstances change, you may want to adjust your cover to better suit your needs and budget. This guide is designed to help you understand the key areas you can change and what to consider before you do.

Our role in this process is to act on your specific instructions. By directing us to make changes, you can manage your policy efficiently and without the cost associated with new personal advice.

The Process: How to Request a Change

Making a self-directed change to your policy is straightforward:

1. Review Your Needs: Use the information below to consider what alterations you might want to make.
2. Request Quotes: Send us an email with your requested changes. We can prepare quotes for multiple scenarios to show you how different options would affect your premium.
3. Provide Instruction: Once you’ve decided, confirm your changes in a signed letter or email that includes your full name, address, and policy number. We will then implement your instructions.

Key Considerations for Altering Your Policy

Here are the most common levers you can adjust for each type of cover.

1. Income Protection

Your income protection premium is mainly influenced by three key components:

• Waiting Period: This is the time you must wait before you can receive a payment after a claim.
  • Options: Typically 30, 60, or 90 days.
  • Consideration: A longer waiting period will lower your premium. Ask yourself: How long could my household manage financially using savings or leave before my benefits begin?
• Benefit Period: This is the maximum length of time you can receive payments for a single claim.
  • Options: Usually 2 or 5 years, or through to age 65.
  • Consideration: A shorter benefit period reduces your premium. Ask yourself: If I were unable to work long-term, what would my financial plan be after the benefit period ends?
• Monthly Benefit (Sum Insured): This is the amount you are paid each month during a claim.
  • Consideration: This benefit is taxed like regular income. Ensure the amount is sufficient to cover your living expenses after tax. Remember that policies generally cover between 70-75% of your gross income. It’s important to ensure you aren’t over-insured, as insurers will cap payments at these levels. A policy obtained pre-Oct 2021 can cover 75% of gross income. A policy obtained after Oct 2021 will cover 70% gross income. 

2. Life and TPD (Total & Permanent Disablement) Insurance

When reviewing your lump-sum cover, think about the financial impact a permanent disability or your death would have on your family. The right amount of cover should be enough to:

• Pay off all debts: This includes your mortgage, personal loans, and credit cards. Do you also want to clear any investment property debt?
• Cover final expenses: The costs associated with end-of-life can be significant. A buffer of $30,000 – $50,000 is often considered for funeral, legal, and medical expenses.
• Fund your children’s future: Account for the cost of education, whether that’s for private schooling, university, or other vocational training.
• Create a capital sum for ongoing living expenses: Your income will be gone, but your family’s expenses will continue. A lump sum, when invested, can generate an income to support them for years to come. For instance if you or your family need $50,000 per year for 20 years, and its assumed to be invested at 3%, then you would need a lump sum of $766,190 to do so. At the bottom of this article is a ready-reckoner for these calcs.

3. Trauma (Critical Illness) Insurance

This cover pays a lump sum on the diagnosis of a specified critical illness (like cancer, heart attack, or stroke). It’s designed to reduce financial stress so you can focus on recovery. When setting the amount, consider funds to:

• Cover medical and treatment costs: Allow for access to treatments not covered by Medicare or private health insurance. A sum between $100,000 and $200,000 is often a starting point.
• Manage debt repayments: Cover mortgage or other loan repayments while you are unable to work.
• Support your spouse/partner: If your partner needs to reduce their work hours or stop working to care for you, this benefit can replace their lost income, typically for a period of 1-2 years. You may consider covering 50-100% of your own income for 1-2 years in this case. 

Unsure What to Do? Your Two Options

1. Act on Your Instructions (Self-Directed)

This is the process described in this guide. You review your options, make a decision, and instruct us to execute the changes.

• Cost: No fee.
• Basis: We act as administrators on your behalf and are not providing personal advice.

2. Request a Full Review & Personal Advice (Paid Service)

If you’re uncertain and want a professional recommendation, we can provide a formal advice service. This involves:

• Understanding your complete financial situation, goals, and needs.
• Comparing your policy’s features, definitions, and price against the wider market.
• Providing a formal recommendation in a Statement of Advice (SoA) document.
• Cost: A fee is charged for this professional service.

Please note that changing insurers requires a new application and health assessment (underwriting), which could result in exclusions or premium loadings if your health has changed.

Ready to make a change or want to request a quote? Please get in touch!

Manual Tool: Calculating a capital lump sum for ongoing living expenses

This table helps you estimate the lump sum needed to generate a specific annual income for your family over a set number of years.

Capital Sum Required to Produce an Annual Income of $10,000

Example Calculation:

You determine your family needs $50,000 per year for 20 years, and you assume the capital can be invested to achieve a 3% real rate of return.

• From the table, the capital needed for $10,000/year is $153,238.
• Calculation: $153,238 x 5 = $766,190.