Sova Financial | How to cut the cost of personal insurance

While personal insurance (e.g. Life insurance, Income Protection insurance, etc) can be more affordable than most people think, here are our top tips for getting more bang for your buck:

1. Start early.

Insurance premiums are based on your personal level of risk (in the case of life insurance, this generally means your age, and your health). By getting insurance in your late twenties or early thirties, you can significantly reduce your premiums, as at that age you are at a lower risk of suffering significant health problems. Also, as insurance typically excludes any ‘pre existing conditions’, by taking out insurance while you are still young and healthy, you will be covered for a wider range of health concerns.

2. Take advantage of level premiums.

Personal insurance policies come with two premium options. Stepped and Level.

Stepped premiums are those that go up every year, as your age (and therefore risk level) increases.

Level premiums are precisely that. Your premiums are locked in for the life of the policy (with the exception of price increases due to inflation, etc).

While stepped premiums are cheaper in the short term (as they start low and then climb), level premiums end up being more cost effective. You may be paying more in the short term, but as you age you will begin to save a significant amount of money. You may not think that matters now, but the cost of life insurance is the reason most people cancel their policies after the age of 45, just when they are statistically most likely to need it the most!

3. Do not obtain your insurance online or through tv ads. (See our article on The big secret insurance companies don’t want you to know).

By obtaining your insurance through a financial adviser/insurance broker, you will save approximately 40% on your premiums.

4. Look for a financial adviser or broker that offers ‘commission free’ insurance.

Financial advisers and Insurance brokers are usually paid for their service by a commission from the insurance company (much like mortgage brokers are paid by the banks). While going ‘commission free’ may mean an upfront cost to you (since YOU, not the insurer, will pay the broker for their service), it can save you a significant amount of money in the long run. In fact, you can expect to save approximately 30% off your premiums for the life of the policy, if the commission component is removed.

5. Take advantage of available tax deductions.

Policies such as Income Protection insurance are generally tax deductible. Depending on your level of income, this can translate to approximately a 20-45% saving off your premiums. Be sure to talk to your accountant to find out what you can claim.

6. Pay your insurance through super.

Some insurance policies such as Life Insurance, Total and Permanent Disability and Income Protection insurance, can be paid for through your super fund. This means that you can obtain insurance without affecting your take-home pay. Also, there are strategies available to you which can help you reduce your insurance premiums even further.

However, you need to be aware that super rules have the potential to impact your entitlements, and although the insurance company pays your claim, you may find yourself unable to access the funds if they are received by the super fund (as they can be trapped inside the fund until you retire).

Speak to your financial adviser to make sure you are getting the appropriate level of cover (most super funds will provide you with a default level of cover, which usually is not nearly enough to cover your needs), as well as to make sure that the terms of the policy are suitable to your needs.