Insurance premiums are like a bet you hope you lose. While everybody who has financial dependents (including themselves) who rely on the income they generate should take out insurance, we sincerely hope that you never have to make a claim. Hopefully, you will get to the end of your life and think ‘I never really needed those insurance policies.’
Nevertheless, life insurances are one of the most important things for you to consider. An appropriate life insurance policy makes an enormous difference to you or your loved ones if an ‘insured event’ ever occurs. Put simply, it would be irresponsible not to give serious consideration to the various types of life insurance.
That said, resources are always limited. So, it also makes sense for you to do everything you can to make your premiums as affordable as possible. Not only does this help you maximise the cover you take out, it also leaves as much as possible left over for you to meet all the other claims on your income – you know, like housing and food!
Here are a few things you can do to make your premiums as affordable as possible.
Sometimes, life insurance premiums can be payable through super. This usually means life cover, some TPD (total and permanent disability) and a limited amount of income protection. Paying these amounts out of superannuation does not necessarily make them cheaper. But because you are using money that is not accessible to you anyway, it reduces the effect of insurance on your day-to-day cash flow.
Of course, if you use super to pay for your insurances, you will have less super. You can’t spend money and keep it too. However, many people accept that they will have fewer super benefits available upon retirement if it means they have more cash available for immediate expenses such as paying off a mortgage or raising children. Many people decide that they will simply retire a few years later – giving them more time to boost their super back up again – so that they can enjoy their money a little bit more today.
Maximising tax treatment
Premiums for some life insurances, in particular income protection, are typically tax deductible. Some life cover and TPD can also be effectively made tax deductible. This is because the superannuation contribution that you make to finance the insurance premium may be able to reduce your taxable income.
Getting a tax deduction for anything makes that thing less expensive. So, it generally pays to at least consider whether life insurance premiums can be rendered more tax effective. That said, not all premiums are tax deductible at all times. So, we recommend you talk to us about your particular situation to see if we can help you use the tax system to make your premiums as affordable as possible.
Don’t be loyal and don’t be swayed by marketing
Insurance companies are big businesses. They do a lot of advertising. In fact, you can see the logos of life insurers splashed across the playing strips of sporting teams all across the world. Different insurers offer different policies and charge different amounts for them. It can be very difficult to know all the policies on offer – which is why advisers such as ourselves usually add enormous value to your insurance decision. We can help you find the right policy at the most affordable price.
While you might think the cheapest is always best, that is not necessarily the case when it comes to life insurance. Indeed, a cheaper premium might simply indicate a policy with less coverage or an insurer who prefers not to pay claims.
The best time to shop around and consider all the options is before you take cover out at all. That is not to say that you should always stick with your current insurer. But changing insurers needs to be done with caution, because you may find there are some unexpected consequences of any change. Basically, it comes down to a philosophy of ‘measure twice, cut once’ – let us do your homework for you and get the right policy in place from the start.
A great way to reduce the price of life insurance is to use an adviser who does not receive commissions. This is how we like to work.
There are two ways to save by avoiding commissions. The first is to have commissions ‘written out’ of the premium. This means you pay the insurer less for your policy – because they do not need to pay a commission to your adviser.
The second is to leave the commission in the premium, but then enjoy the fact that we will pass any commission we get from the insurer back to you each year. This is often what we do when someone asks us to take over as the adviser for an existing policy.
In both of these cases, you do need to pay us for our time. But, as the years go by, the amount you pay to us pales into comparison with the amount you save by avoiding the need to pay commissions. Not to mention your peace of mind – after all, if no one is paying us a commission, you can be confident that the policy we recommend really is the one that best suits your needs.