At a glance:

  • Indemnity and agreed value policies have different roles in reducing premium costs.
  • Adjusting waiting and benefit periods can help lower premiums while maintaining essential coverage.
  • Leading a healthy lifestyle and updating your smoking status can lead to potential savings on your income protection insurance.
  • Strategies like stepped premiums, tax deductions, and annual payments help in managing rising costs.



Income protection insurance is a crucial financial safety net you will need when you are unable to work due to an injury, illness, or disability. As we know, life is full of uncertainties, and when you have people financially depending on you, income protection insurance provides you and your loved ones a breathing space in times of need. However, the recent hikes in the price of income protection insurance premiums have raised serious concerns among current policyholders and aspiring ones.


To manage the costs associated with your income protection insurance and ensure it remains affordable for you, Aspect Underwriting has compiled some quintessential tips for you. Be sure to follow the tips properly so you can decide for yourself how you can cope with the rising premium costs and continue receiving the benefits of your insurance.



Choose Indemnity Instead of Agreed Value (with Some Risk)


Before APRA’s intervention, income protection policies came in two types: agreed value and indemnity. Indemnity policies cost less than agreed-value policies. However, choosing an indemnity policy has a risk to it. Unlike agreed value cover, an indemnity policy considers your current income during a claim, which can lead to lower premiums if your income falls.


The indemnity policy is suitable for individuals with a consistent income and job security. For self-employed individuals with a fluctuating income, contractors who may be on breaks between contracts, or young women who may take a break to start a family, an indemnity policy might be riskier.



Reduce Benefit Amount or Cover


By reducing the benefit amount or coverage of your income protection insurance, you can lower the costs of your premiums. A lower benefit amount means a lower payout for the insurer during the claim. This reduced payout for the insurer leads them to charge you lower premiums.


Before reducing the benefit amount, you should assess your actual financial needs and lifestyle to determine the optimal coverage. If a reduced benefit is appropriate for you after evaluating your financial needs, you can avoid paying for more coverage than necessary.



Choose a Longer Waiting Period


Extending the waiting period helps to reduce the cost of your premiums by around one-third. But you have to be careful before extending your waiting period – check whether you will be able to stay financially afloat during that period. Individuals with proper savings and resources to cover expenses during the waiting period are best suited to choose a longer waiting period.


Choosing longer waiting periods can help you remove your income protection premium costs
Source: Pexels


Finally, if you have the resources to extend your waiting period, choose a longer waiting period because the longer the waiting period, the lower the premiums. Consult with your insurer and get a quote to get the actuals of how much your premiums will cost if you change your waiting period.



Reduce the Benefit Period


Reducing the benefit period is like choosing a shorter time for the insurance to support you. You may find it preposterous to minimise the coverage time, but the positive side of choosing a shorter period is you have to pay fewer premiums.


In case of a shorter benefit period, your insurance company do not have to pay out benefits for a longer period, so they charge fewer premiums. If you align the coverage period with your financial needs and potential time off work, reducing the benefit period is an idle way to cut premiums.



Be Careful with Claim Indexation


Being careful with claim indexation will help reduce the cost of income protection insurance by controlling how your coverage grows over time. Claim indexation is used to adjust your benefit amount over time to account for inflation, ensuring your coverage remains relevant. While claim indexation is important, it can contribute to rising premiums as insurers charge extra amounts for claim indexation. You should carefully evaluate its necessity based on your financial goals.



Suspension Options


Suspension options allow you to pause your coverage temporarily, and during this time, you won’t have to pay premiums. Some policies allow you to temporarily suspend coverage for up to twelve months for specific life events, such as parental leave or sabbaticals. This feature can provide cost savings during periods when full coverage isn’t needed.

When you are ready to restart coverage, you can usually do so without needing a new application or medical check-up. Using the suspension option is just like hitting ‘pause‘ on your insurance costs when you are not actively using it.



Consider Stepped Premiums


Considering stepped premiums can help reduce the cost of income protection insurance by starting with lower payments when you’re younger. As you grow older, the expenses increase gradually.


This can be helpful if you expect your income to rise over time. It’s like paying less when you’re just starting and more when you can better afford it, making it easier to manage your insurance costs as your financial situation improves.



Lead a Healthy Lifestyle


Maintaining a healthy lifestyle can positively impact your insurance costs. Insurance companies see healthy people as less likely to insure. When you make healthy choices, such as regular exercise and eating well, you are less likely to have health issues that could lead to a claim. This lower risk for your insurer means they can charge you less for your coverage, helping you save money on your premiums.



Update Your Smoking Status


Certain human behaviours, like smoking, can affect the cost of your premiums. Non-smokers generally have lower health risks, and it could lead to fewer chances of making insurance claims. The lower possibility of making claims gives non-smokers a preferential edge over smokers. If you’ve successfully quit smoking, notifying your insurer can lead to lower premiums. Smokers typically pay higher rates due to health risks associated with smoking, so your new status can yield significant savings.

Different insurers apply different pricing factors, so it is best to fully understand the terms of your insurance policy before signing up.



Request a Reassessment of Medical Condition


Individuals with good health conditions are less likely to claim. Requesting a reassessment of your medical condition can help lower the cost of income protection insurance because if your health has improved since you first got the insurance, the insurance company might see you as less risky to insure. This means they could offer you a lower premium since they’re less likely to have to pay out a claim due to your improved health. It’s like getting a discount on your insurance because you’re healthier now.


Also Read: Does Age Affect the Income Protection Insurance?



Claim the Tax-Deductible Portion


Certain parts of your income protection insurance premium might be tax-deductible. Generally, if you choose to pay for your income protection insurance by yourself (not using your super fund or retirement fund), you can ask for a tax deduction when you do your taxes. Depending on how much you earn and the tax rate that applies to you, you might get back nearly half of what you paid for the insurance as a refund.

Consult with a tax professional to ensure you’re taking advantage of potential tax benefits, reducing your overall cost.



Pay Premiums Annually Instead of Monthly


Opting for annual premium payments instead of monthly can result in cost savings. When you pay yearly, the insurance company doesn’t have to handle your payments as often, so they may give you a discount. It’s like buying in bulk – you get a better deal when you pay for a whole year upfront. This way, you reduce the administrative work for the insurance company, and in return, they lower your overall cost. Monthly payments often include administrative fees, making annual payments a more economical choice.



Consider Paying Through Your Superannuation


Paying for income protection insurance through your superannuation can help lower costs because it uses money from your retirement savings. Since superannuation funds are tax-efficient, the insurance premium comes out of your pre-tax earnings, which means you pay less income tax. This can make the insurance more affordable compared to paying with money from your regular income.


Paying income protection premiums with your superannuation may help tackle rising costs of the premiums in Australia
Source: Freepik


Paying from superannuation is suitable when you are financially struggling and are not able to afford a desired level of coverage. During such times, you can pay a part or all of your premium from your super fund. Just remember, while this can save you money now, it might affect your retirement savings in the long run, so it’s important to find the right balance.



Avoid Add-ons or Extras Policies


Avoiding add-ons or extra policies means you are not adding additional coverage or features to your income protection insurance if you don’t really need them. This helps reduce costs because each added feature comes with its price. By sticking to the basic coverage that you truly need, you’re only paying for what’s essential, keeping your insurance costs lower. It’s like buying only the toppings you really like on a pizza instead of getting all the extras that you might not enjoy or need but will be paying for anyway. You should consult with your insurer to find out more details about removing add-ons.



Bundle Policies and Take Them from the Same Insurer


Bundling policies means getting different types of insurance, like health insurance, TPD (Total and Permanent Disability), or trauma insurance, together from the same insurance company. This can help lower your overall costs because the insurer gives you a discount for getting more than one policy with them. It’s like buying things in bulk to save money.

When you get these policies from the same insurer, they might offer you a better deal compared to getting them from different companies. This is because the insurance company wants to keep you as a loyal customer and rewards you with lower prices. It’s like getting a discount for being a regular shopper at the same store.



Think Twice Before Taking Multiple Income Protection Policies


Income protection policies usually cover up to 75% of your income when you are unable to work due to illness, injury, or disability. Some people may think having multiple income protection policies will have a higher payout. However, having various coverages will still yield the same percentage of what you earn as a single coverage. So, you should think twice before taking multiple income protection policies, as having numerous policies doesn’t necessarily mean you’ll receive more money if you can’t work.

Getting more coverage than you need can lead to higher premiums without giving you extra benefits. So, it’s smart to consider your actual needs and avoid unnecessary policies to keep your costs down.



Negotiate or Ask for Discounts from Your Insurer


Insurers often value customer retention and risk mitigation, making them open to adjusting premiums based on individual circumstances and market competitiveness. You can use periodic renegotiation and comparison shopping, which can also lead to cost savings. Also, loyalty incentives, bundling policies, maintaining a good claims history, leading a healthy lifestyle, having a safe occupation, and exploring annual payments are some ways to secure better rates potentially.



Regularly Review Your Policy to ensure it matches Your Needs


Regular review of your policy gives you a clear picture of what you are getting from your coverage and if it is the right fit at that point in time or not. Over time, things change in our lives, like our income, family, or financial conditions. You have to update your policy to match these changes and ensure it is relevant today. By regularly reviewing your coverage, you can make sure it is the right fit for your current situation, and you can avoid paying for additional features you don’t need. This helps you to save money on your premiums and stay financially secure.



Shop Around and Search For Better Offers


When it comes to income protection insurance, shopping around means checking different insurance companies to find the coverage that offers you the best deal – a lower price for the coverage you need. By doing this, you can save money on your insurance, just like you would save money by finding a better deal on anything you buy out of need. So, searching for better offers in the insurance world is like finding the best price for your financial safety net. It’s a smart way to make sure you’re getting a good deal on your insurance costs.


As the cost of income protection insurance premiums continues to rise, it’s essential to take proactive steps to manage these expenses while safeguarding your financial well-being. The strategies provided by Aspect Underwriting offer practical ways to strike a balance between coverage and affordability.


By making informed decisions like choosing the right policy type, adjusting waiting and benefit periods, and exploring cost-saving options like healthy lifestyle choices and policy bundling, you can tailor your coverage to your needs. Additionally, shopping around and comparing offers from different insurers ensures you’re getting the best value for your insurance, ultimately allowing you to navigate the challenges of uncertain times with confidence and financial security.

Mike Wallis

Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.