For most of us, being unable to work for health reasons is a major financial problem. Income protection insurance can give you the peace of mind you deserve. Loss of income can have a real financial impact on any family’s lifestyle, and income protection insurance is designed to meet the needs of those looking to protect themselves against it by paying a regular monthly amount.
Income insurance premiums can seem expensive but having the coverage when you need it is essential.
There are ways to control how much you pay without sacrificing the security the coverage provides.
1. Remove Optional Extras
Your income insurance policy may include extra-cost options – like Increasing Claim Option, Accident benefit or Booster benefit. Removing extra cost options that you no longer need can help reduce your premiums, though it does remove the benefit of the respective option.
You can ask us to remove any extra cost options. But remember that if you do cancel these extras, you will not be able to exercise them and may not be able to add them back in the future if you change your mind.
2. Declining Indexation Increases
benefit against inflation, your benefit amount is automatically increased each year until you reach age 65. Your premium will increase as a result of this increase in cover. You may decline the indexation increase for any particular year or for all years and this change will take effect from the next policy anniversary.
3. Reduce the Benefit period
A benefit period is the length of time your income protection benefit is paid for. As you get older, or your financial situation changes you may not require the same benefit period you chose when you took out your policy. The longer the benefit period, the more expensive the policy.
Reducing your benefit period may make a reduction to your premium.
For example:
- Reducing your benefit period from an aged 65 benefit to a 2 or 5-year benefit period.
- Monthly premiums are typically lower as the benefits won’t need to be paid for an extended period.
4. Reduce Monthly Benefit Amount
Most people struggle to make ends meet when they are healthy and working full-time. Moreover, when they lose their health and ability to work and have to live on 70% of their previous income, this is the general maximum cover that can be provided in the basic policy.
Reduce your monthly benefit if it could suffice your living expenses. However, consideration must be given that the monthly benefit is taxable, so people should work off whether the after-tax amount is sufficient to live on if they can’t work.
Bottomline, this should be considered an option, albeit a reluctant one. To have some protection is better than none at all.
5. Increase your Waiting Period
A ‘waiting period’ is the time from when you first become unable to work because of illness or injury, and when an income protection benefit starts being paid. You may have accumulated extra sick or holiday leave that can provide an income buffer if you are unable to work due to illness or injury.
By increasing your ‘waiting period’ for example from 30 days to 60 or 90 days (longer waiting periods are available) you may reduce your premium. Speak to your financial adviser regarding your specific cover needs. You can get a quote to find out how much your insurance cover will cost if you reduce it.
6. Request a reassessment of Health Loadings
For certain medical conditions and injuries, a health loading can be applied. A health loading is a percentage increase in the cost of the premium.
If you had health concerns when you originally purchased your insurance, such as high cholesterol or high blood pressure, and your health has since improved, we may be able to reassess your health loading, subject to underwriting.
If your health has improved, you can ask us to reassess your insurance. This would involve underwriting.
7. Paying your Insurance through Super
Income protection insurance can be held inside the super. This means the premiums are paid from your super not out of your after-tax take-home pay – but keep in mind, using your super to pay for your insurance will reduce your retirement savings.
It’s important to note that a condition of release, under super law must be met before any insurance benefit can be paid to you, so it may be harder to get a payment. For example, if you have income protection in super and are not working at the time you suffer an illness or injury you may not be eligible for an income protection benefit. And if you have life insurance inside super, there may be tax implications for your beneficiaries.
If you want to start paying for your insurance through your super, you may be able to set up the new policies in super without having to be underwritten again. Speak to your financial adviser about structuring your insurance policies through your super and whether it is suitable for you.
8. Convert to a Basic Policy
Converting a comprehensive income protection insurance policy to a basic equivalent provides the following benefits:
- Premium reduction with different rates but can be up to 20%
9. Agreed Value to Indemnity
A reasonable definition of Agreed value income protection policies is “if the insured’s income decreases between the commencement of the policy and the time the claim is made, the reduction will not affect the total amount of disability benefits payable.
For Indemnity policies, the opposite applies, placing considerable importance on the definition of Pre- Disability Earnings (“PDE”).
Regardless of risk, the expected negative occurs only if reduced income and/or disability occurs prior to the expiration of the PDE average life, due to significant cost differentials, a change can be justified..
Keeping the Protection you Need
While you want to ensure that your premiums are affordable, it’s important to feel confident that you and your loved ones will be looked after financially if you are unable to work because of illness or injury, Income protection insurance can relieve a financial burden during an emotionally challenging time.
Maintaining the right level of protection for your circumstances can provide the peace of mind that you and your family will be looked after.
All income protection policies do not start on the same basis and all income protection policies do not have to end on the same basis as they started.