Most of Australians religiously and dutifully insure their cars and homes. Yet, in a bizarre…
Giving yourself a more affordable insurance policy does not mean missing out on sufficient cover that meets your needs. By obtaining the right advice and applying it to strategically lower the cost of your insurance, the only thing you might miss out on is unnecessarily high premiums!
Picking A Payment Structure
Your insurance premium is worked out by an estimation from your insurer of how likely you may claim on your insurance. When you make a claim, you may have to pay an excess, which is an amount that you agree to put towards the cost of a claim. The policy you have chosen, as well as your age, health, job and other factors all play a part in the decision to how much of a premium and excess you need to pay.
Choosing a ‘stepped premium’ in the first few years of your life insurance policy might help with the cost of your insurance policy. Stepped premiums let you begin to pay your insurance at a lower rate, which rises as you get older. Your premiums will be calculated on each policy anniversary. As paying your insurance premiums begins to feel more achievable, you may consider changing your payment structure to a ‘level premium’, which is a better option long-term.
There are 4 main types of personal insurance
- Life insurance: upon the death of an insured person, a nominated beneficiary or beneficiaries will be paid a sum of money
- Total and permanent disability insurance (TPD): you will receive a benefit if you are totally or permanently disabled
- Trauma insurance: pays you a lump sum benefit if you suffer a critical illness or serious injury. This may include stroke, heart attack, or cancer.
- Income protection insurance: get paid a benefit if you are unable to work from sickness or injury.
Making the Most of Your Super
Taking out life insurance through your superannuation fund may be a good strategy to lower your insurance costs. Premiums through super funds are often cheaper as the superannuation fund buys insurance policies in bulk and payments can be paid using concessionally taxed contributions to your super.
Insurance premiums are deducted from your super balance automatically making payments more straight forward. Super contributions from your place of employment and salary sacrifice contributions are taxed at 15% which is lower than the marginal tax rate for most people, making insurance through super a tax effective option. Insurance through super is known to have a default amount of cover. You can usually increase the cover above the default however, but once the cover is raised, you will have to start answering questions about your health, job and probably have a medical checkup. Talk to your adviser on how to ensure you have enough cover through your superannuation fund.
Life, TPD and income protection insurance can be paid from your superannuation. Income protection insurance policies may be tax deductible, if held personally.
Choose a Longer Waiting Period
Most income protection policies offer a waiting period between 14 days and two years. This is the amount of time you must wait before your insurance payments begin. Usually, the longer the waiting period, the cheaper your policy may be. Taking out ‘indemnity cover’ may help you keep costs down, due to the premiums usually being lower than those for ‘agreed value’ cover (which still exists, but agreed value cover is no longer offered in the market).
When you’re choosing your waiting period, think about how much you have in sick and annual leave, savings and emergency funds, and speak to your adviser about the best option to suit your situation.
Insurance is a crucial part of your financial strategy
Getting the most suitable insurance cover for your individual needs is a crucial part of your financial strategy. Insurance helps to protect your finances and livelihood as well as protecting the people you care about the most. With all this to consider, it is important to seek advice from a qualified financial adviser to help make insurance affordable – and manageable – for you and your circumstances.
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The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness regarding your objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the author’s express written consent.
Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.