Income Protection: How to best manage your rising premiums
Many professionals who have held an income protection policy for some time would no doubt have noted the premium rise in recent years. With this significant rise, together with inflexible underwriting terms, one could almost be forgiven for thinking that now was the right time to let their income protection policy slide. But, with the world in a state of flux and the resulting additional financial pressures on individuals, it is more imperative than ever to ensure you are protected against any potential loss of income.
Why the increase?
The large inflow of claims experienced over the last three to five years, coupled with the subsequent poor financial performance suffered by insurers have all led to these substantial policy increases, with 20% to 50% increases not uncommon. Additionally, a large proportion of these claims have been for back injuries and mental health issues, often resulting in long-term benefit payments to the policy owner.
Insurers do not have many options to improve their profitability other than increase premiums and tighten their underwriting guidelines – which is how we find ourselves in this position.
Can you afford not to insure your income?
What has not changed is that clients still need financial protection in the event they are unable to work due to sickness or injury. As a result of the tightened policy guidelines, we have found that many people need more help than ever navigating their way through complex insurance policies. This is where the expertise of an insurance adviser is invaluable.
A good adviser’s advice process will be comprehensive and personally tailored towards an individual, encompassing their family and/or business situation. There are several ways an adviser is able to assist their clients reduce costs on their insurance portfolio. These can include:
- Sourcing alternative insurers who are offering comparable policies but cheaper premiums (i.e. a cancel & replace – this will usually require full medical underwriting);
- Reducing levels of cover which in turn reduces the premium;
- Changing the “policy ownership” and utilise superannuation as a form of premium payment which can assist with cash flow;
- Making alterations to the existing policy to reduce the premium, such as:
- Changing the waiting period on Income Protection from 30 days to 90 days
- Declining annual sum-insured CPI increases
- Removing “optional extra’s” benefits which may form part of the policy at an additional cost (i.e. Nursing care benefit, Accommodation benefit & Claim escalation benefit etc)
Ultimately, protecting your income from the unexpected provides the necessary safety net to shield yourself, your family and your assets from significant loss. Leveraging the expertise of an adviser to tailor the best solution for your circumstances can help alleviate any cost anxiety, providing peace of mind in the knowledge that you are appropriately and adequately protected.
