How to Slash Your Income Protection Insurance Costs in Half

Income protection insurance is one of the most important types of insurance you can buy, but it’s also one of the most expensive. Simply put, income protection insurance provides replacement income for you if you’re sick or injured and can’t work. Because of this, and the fact that most people do experience a disability of this type at some point in their lives, the cost to provide this coverage is usually pretty high.

But there are a few ways to lower your coverage costs and still get what you need.

Get a Lower Monthly Benefit
One option you have is to lower your monthly benefit payment. This option is the most common approach taken by many Australians. It’s not the most ideal, but it will lower your premium. The problem with this approach is that you might find yourself behind on your bills and unable to pay them at a time when you need critical services the most.

For example, let’s say your benefit payment is 75 per cent of your regular income. If you reduce your benefit to 50 per cent, you might drop your premium but at what cost? If you become disabled, you’re making half of what you used to make at your job. Now, you’re disabled, not earning much, getting behind on your regular bills, and unable to get ahead. When you do go back to work, you’re going to have to work twice as hard to get caught up.

Get a Longer Waiting Period
A longer waiting period is something most people don’t opt for, but should. The reason you’re buying insurance is to cover things that you can’t afford to pay for – not to cover things that you can pay for. Often called “excess,” the waiting period is the time you wait before the insurance company starts paying benefits.

 
If you extend the waiting period out from 14 days to 30 days, you could save as much as 50 per cent on your premium. That’s a significant amount. Can you save up a month’s worth of income to make due until you get your first claim check? Absolutely. It’s a lot easier than trying to get by on 50 per cent of your income when you’re disabled.

Take Precaution
Play with the excess a bit on your cover, but don’t go crazy with it. In some cases, you can extend the waiting period out to 6 months and even a year. However, the savings, proportionally, aren’t as good as the extension from 14 to 30 days.

Plus, if you have to save up 6 months or a year’s worth of income, you might as well not have any insurance at all.

Start Saving Money
To fill in the gaps between the time of your disability and the time when the insurer will pay a claim, start saving money right alongside your premium payment every month. Put money into a savings account, or some other account that’s easily accessible.

To find the money for this, consider temporarily raising the excesses on all of your other insurance policies, holding a yard sale to raise money, and working overtime if possible. All you need is an extra month’s worth of income if you’re going to extend the waiting period. That shouldn’t be too difficult to pull off.

Helen Akin is a retired insurance broker. She likes to share her know-how by posting on various blog sites. To find out more on Income Protection, visit this page.

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