You don’t have to cut corners on your insurance or sacrifice the adequacy of your cover to make your policy more affordable.
A necessary evil? A must have? Love it or hate it, you’re likely to need insurance in your life! But how do you get the most bang for your buck? This article deals with options available for personal insurances like Life and Total & Permanent Disability, Trauma Insurance and Income Protection cover.
Choosing a payment structure
Choosing stepped premiums in the first few years of your life insurance policy may help you keep the cost of cover low in the beginning. Stepped premiums allow you to start paying your insurance at a lower rate, which then rises as you grow older. Your insurer calculates your premiums on each policy anniversary based on your age, and sometimes with CPI too.
You may consider moving to level premiums as you become more capable of paying your insurance. Although they’re more expensive in the beginning than the stepped structure, level premiums generally offer a good long-term savings because premiums are calculated based on your age when you first take out level premiums.
Using your super
Taking out life insurance through your superannuation fund may lower the cost of insurance because premiums may be paid using concessionally taxed contributions paid from your employer or sacrifices into your super. Premiums can be cheaper because super funds bulk buy insurance policies and can negotiate discounts (group insurance.) Individually, some offer a 15% discount or rebate off premiums due to the concessionally taxed structure of Superannuation.
But keep in mind that super funds may offer limited cover. Talk to your adviser on how to ensure you have enough cover. And make sure you don’t constantly erode the value of your retirement savings with large premiums.
Waiting for a longer period
When taking out income protection insurance, you can choose a waiting period. The longer you wait before receiving income benefit payments, the lower your premiums. Make sure you have enough in savings or an offset account to tide you over – and remember, payments are made 30 days in arrears – so a 30 day waiting period may still mean 60 days before you get paid!
You can also choose between an indemnity policy and an agreed value policy. Taking out indemnity cover may help you keep the costs down because premiums are generally lower than those for agreed value cover.
Income protection premiums are usually tax deductible if you fund your cover outside super, helping make this policy affordable. If you pay your insurance through your super, premiums are generally tax deductible to the super fund.
With so much to consider, seeking advice from a professional financial adviser is important to help make insurance affordable – and manageable – for you and your circumstances. Give us a call if you’d like some help. 07 5593 0855.