If you’re like me you’ve noticed that your personal insurance premiums steadily increase as you age, often by quite a lot. This is because most personal insurance claims are due to illness, which unfortunately becomes more prevalent with age.
The rising premiums can impact our cash flow and wealth creation plans, and it may make you wonder if it’s still a good idea to keep your insurance.
The good news is that there are plenty of choices available. Cancelling your policy completely leaves you and your family exposed. Instead, consider one or more of the following options to manage your cover as you age:
- Reduce the sum insured
- Review the optional terms you’ve selected
- Review loadings if you’ve quit smoking or lost weight
- Fund some cover through superannuation
- Take advantage of annual discounts offered for staying active and healthy
Even when none of those options are suitable you may still be able to reduce your premiums by comparing your premium to the current market. Changing to a modern policy that offers better value for money can be a great option when our health is as good or better than when you first obtained cover.
Review the sum insured
There’s no set level of cover that people need – it’s entirely based on the lifestyle choices you’d like to be able to afford if a certain event occurred. When you haven’t yet accumulated enough wealth to fund those choices then insurance can temporarily plug the gap.
As you progressively repay debt and accumulate wealth your funding gap reduces. Every few years, you may therefore be able to reduce your sum insured. Insurance premiums are proportionated to the sum insured, so you can readily estimate how much you may save.
One caution – if you foresee life changes that may increase your need, for example through extra debt, lower income or growing your family, then pause and review your funding needs before adjusting your cover.
Review the optional terms you’ve selected
Income protection policies are one of the more expensive due to covering the most likely event of short to medium term disablement. To reduce the premium there are several options you can adjust:
- Increase the waiting period, which may be applicable if you now have large amounts of available sick leave or easily accessible savings.
- Reduce the benefit period, which may be suitable if your wealth accumulation enables you to retire earlier.
- Switch to an indemnity policy, rather than agreed value.
- Remove the “indexation of benefit on claim” option
Across all cover types, other optional benefits you may have on your policies include:
- A choice of Basic or Premium cover
- A choice of disability definition between “Own occupation”, “Any occupation” or “Activities of Daily Living”
- Cover reinstatement after claim
- Death cover buy back after claim
Fund some cover through superannuation
When you still want the same level of cover and benefit options but don’t have the cash flow to fund the premiums right now you may be able to use your superannuation to fund the premiums. Death cover and some Total & Permanent Disability (TPD) and income protection cover may be owned by a superannuation fund.
Whilst it may help your cash flow there are impacts on your estate planning and wealth creation, so ensure you consider your whole financial plan before changing your policy ownership.
Take advantage of annual discounts offered for staying active and healthy
Traditionally insurers have charged extra for people with a history of illness that increases their chance of another illness. Healthy people received standard rates, often which were guaranteed despite a later decline in health, so long as their policy remained in force.
Several insurers are now offering annual premium discounts for people who demonstrate they are still healthy and active. The programs differ between insurers with some being as simple as a quick medical check-up each up each year, which is a good idea in any case. So, if you’re healthy consider switching to a new policy that includes this discount option.
Or if your policy currently has a premium loading but your health has since improved, for example, you’ve lost weight or quit smoking, then you can apply to have your loading removed.
Choose commission-free advice and save on premiums
Would you like a discount of between 20-30% for the life of your policy? Then choose fee for service insurance advice with commissions rebated.
When commission on new investment and superannuation products was banned in July 2013 the Government didn’t ban commission on insurance because research suggested ‘the average consumer’ was unwilling to pay for advice.
However, if you’re not ‘average’ then you can choose fee for service insurance advice with commissions rebated. Typically, your cumulative premium savings will recoup the advice fee within 3 to 5 years. Thereafter you’re ahead, meaning extra money you can dedicate to creating wealth, which in turn can reduce your need for cover as discussed earlier.
Assess the right choice for you
One great benefit of aging is that we grow wiser (hopefully). If you’re concerned about rising premiums, then consider which of the above options may best suit your life now. Before acting ensure you consider the consequences of reducing your benefit.
If you are unsure how to assess the right trade-off for you then meet with a specialist insurance adviser for personal advice.