By Grant Willis
Executive Manager, Life Portfolio
Insurance is about protecting the lifestyle you’ve worked hard to create, and it’s important to be able to maintain your cover for as long as you need it.
Here are five things you can discuss with your financial adviser which may help you save on your personal insurance.
Stepped vs level premiums
Premiums can be structured as either stepped or level. Whichever structure you choose affects the cost of your premiums. A stepped premium starts lower but increases each year as you get older and your likelihood of claiming increases. Level premiums start higher but usually stay constant over the life of the policy. Either option could save you money in the long run, depending on your insurance needs. You can also choose a combination of both.
While stepped premiums do increase, yearly changes tend to be gradual. They can be a good option if you only need insurance in place for a specific time or your need for insurance might reduce.
Meanwhile, if you know your insurance needs to be in place for the long term, level premiums make budgeting easier and can save you thousands over time.
Setting your amount of cover
The amount of cover you have in place will influence your premiums. It’s important to have enough cover in place to protect your lifestyle and ensure you and your family will be looked after, but you don’t want to be paying for insurance protection you might not need.
Since your level of cover can be based on things like your income or mortgage repayments, it’s not always easy to figure out. We always recommend bringing it up with your adviser, who can help you work through your options, so you know you’ve got the appropriate level of cover in place to meet your needs.
Adjusting your benefit period
Your benefit period is the length of time you receive payments from your insurer if you are unable to work due to one of the reasons specified in your policy. Usually, the longer your benefit period, the more expensive your premiums.
Benefit periods could be two years, five years or until the age of 65 or 70. Having the right benefit period means you are not over insuring and paying for cover you might not need.
For example, you might have an increased need for income protection at the start of your mortgage or when your children are younger. However, as your children become financially independent and the amount you owe on your mortgage drops, you might only need income protection for a shorter period, say five years, rather than until you turn 65.
Selecting your waiting period directly affects your premiums. Your waiting period is the length of time you will need to wait before you can start receiving payments after making a claim. Usually the longer waiting period you have, the lower your premiums will be.
You can choose your waiting period based on how long you think you can survive without an income, or base it on any annual leave that you can use or whether you have sufficient money in your savings account to manage for a time. Waiting periods can be anything from 14 days to two years.
Accelerated vs stand-alone trauma cover
Trauma insurance cover is designed to give you a lump sum payment if you are recovering from a major health issue. Trauma cover can be structured in two ways – accelerated and stand-alone - which affects both the cost of your premiums and your claims.
Stand-alone trauma cover is just that. It stands on its own and doesn’t reduce any other insurance benefits you might have if you make a claim. With accelerated trauma cover, when a claim is paid it is deducted from the total life cover of your policy. For example, if you have $100,000 of life cover and make a claim on your trauma for $20,000, your life cover will be reduced to $80,000.
Accelerated benefits are a cheaper option, offering you lower premiums than stand-alone cover. You might also be able to buy back the cover later which will restore your life insurance policy cover back to what it was before the trauma claim.
Having manageable premiums is important and it’s also important to keep in mind why you’re taking out insurance in the first place. You should think realistically about the type of cover you are taking out and how much you need to protect the lifestyle you’ve worked hard to create. A financial adviser can discuss options and help you balance your insurance cover so that it suits your unique circumstances. You might also be able to save money by having all your cover with one insurer. If you don’t have an adviser, we can help you find one.
The information in this article has been compiled from various sources and is intended to be factual information only. It is not personal advice and any description of an insurance product or service is not a complete description of all the terms and conditions applicable to the particular insurance product or service. You should consult a qualified adviser for advice on whether the information in this article is suitable for your personal situation and needs. While we take reasonable steps to ensure that the information contained in this article is accurate and up-to-date, it is subject to change without notice. Asteron Life Limited and its related companies does/do not accept any responsibility or liability in connection with your use of or reliance on this article.