Property Investment
6 min read
Let’s be real – insurance is a grudge purchase.
Most people don’t want to pay for it ... and you don’t see the benefit until something goes wrong.
A car crash, you get sick, or a loved one dies.
And one of the worst parts: there’s often a big gap between what people think they need … and what they’re willing to spend.
The good news is you can lower your insurance costs while still protecting yourself.
When you meet an insurance adviser, they’ll suggest the policies you should take and at this point you’ll see the cost.
When I help people get insurance and show them the premiums, some say: “Bill, I don’t want to spend that much. Can you make it cheaper?”
The answer might be “yes”. So in this article you’ll learn about the different levers you can pull to decrease your premiums. That can make your insurance policies a bit more affordable.
One way to reduce your premiums is by adjusting your excess (for general insurance) or wait periods (for income protection and health insurance).
The excess is the amount of money you agree to pay out of your own pocket when you make an insurance claim.
Let’s say your car insurance excess is $500, then you have an accident that costs $2,000 to repair. You’ll pay $500, and your insurer will cover the remaining $1,500.
When you agree to a higher excess you take on more of the risk. That usually means you pay a lower monthly premium. Just keep in mind that you’ll have to pay more if you ever need to claim.
A larger excess isn’t as daunting as it seems, especially for medical cover.
For example, if you have a $250 excess on your medical insurance, you don’t pay that amount every time you make a claim.
A colleague of mine recently saw her cardiologist for a check-up, which cost $250, the same as her excess. But the next time she sees her cardiologist, she won’t need to worry about the excess for the rest of the year.
For income protection insurance, a longer wait period is the “excess”.
So, you’ll need to wait longer (not earning an income) before being paid out for your claim.
Moving from a 4-week wait to 8 or 13 weeks can significantly lower your premiums.
But, you also need to be realistic. You still need to have money available to feed yourself for those 8-13 weeks. So, extending your wait period could be an option if you have emergency cash available.
Some of our clients have enough savings to tie them over for six months, but that’s not the case for everyone.
For some, stopping work for just four weeks could place them in severe financial distress. If that’s you, you’ll want a shorter wait period.
Private medical cover tends to be the most expensive premium. That’s because people tend to make lots of claims, so costs add up for the insurance company.
If you’re looking to save money, the best place to start is by reassessing your health insurance.
I advise removing the comprehensive cover. This includes claims for things like glasses, dental work and GP visits. These expenses are typically manageable on your own.
For example, you can probably afford $400 for a pair of glasses, but you probably can’t afford $40,000 for major surgery.
So, if you want to stick to a budget for your insurance, I often cut comprehensive cover.
You can also structure your insurance payouts differently to save money on premiums.
Many life insurance policies include an emergency cash component.
This provides a big immediate lump sum payout to support your family.
Instead of a lump sum, you could opt for Life Income Cover.
This way your loved ones still get paid out the same amount, but in monthly payments instead of one lump sum. This often reduces your premiums.
One way to cut costs is by converting a portion of your policy into a different type of cover.
For example, you could take $100,000 of life cover and convert it into terminal illness cover. This costs significantly less.
The trade-off is that you only get paid out if diagnosed with a terminal illness, but this could still provide valuable financial support while reducing your premium.
Your need for insurance will change as life goes on.
If you pay off a lot of your mortgage or save more money … maybe you don’t need as much insurance.
This is why it’s a good idea to review your policy regularly.
Trauma insurance has become increasingly expensive because what qualifies for a payout has widened over the years.
To keep premiums down, you can create a more tailored trauma insurance. Rather than taking out the standard cover that pays out for many conditions, you could structure it based on how severe the condition is.
So you could get paid out more for severe conditions and less for minor issues. This approach keeps you protected while significantly lowering premiums.
Similarly, some covers are too specific and, therefore, more expensive.
For example, Total and Permanent Disability cover comes in two main types:
1. Own Occupation – You’re covered if you can’t work in your specific job any more.
2. Any Occupation – You’re only covered if you can’t work in any suitable job based on your skills and experience.
Switching to “own occupation” TPD cover can make your premiums cheaper.
However, some people worry this means they would be forced into taking any job available (in the worst case scenario). That’s not the case.
If you’re a journalist, and become permanently disabled, you wouldn’t be forced into a completely unrelated job like working in a supermarket.
The insurer would look for a role within your skill set, such as media consulting or communications.
Insurance companies have become competitive, so they’ll often add a load of unnecessary bells and whistles.
For example, many people sign up for optional add-ons like inflation adjustments. This can automatically increase your cover each year to keep up with rising costs.
While this can have some pros, it also increases your premiums each year.
Similarly, you might be paying for redundancy cover. But if you have enough savings to cover a period of unemployment, you could remove this add-on to lower your premium.
Some insurers offer the option to add “restrictions” to your policy. A restriction limits the payout amount, in some cases to only paying out a claim for 2 years, instead of to the age of 65.
This is often used for claims related to back injuries or mental illness. These are two of the most commonly claimed conditions.
This won’t be an option for everyone. If your history includes mental health issues, the insurer may exclude coverage for it entirely.
But it’s important to remember this is a bit of a gamble. Sure, you might save money on premiums now, but if you need to claim for mental health issues later, you could find yourself in a tough spot.
A good insurance adviser should discuss these options with you.
For example, by using each of these saving strategies I was able to reduce a client’s premiums of $120.89 a week down to $74.62 ... just by pulling some levers.
That’s around $46 a week.
If you already have a policy, don’t hesitate to reach out to your adviser and let them know you’d like to adjust things. And yes, you can say it’s to make your premiums more affordable.
For example, you could say, “I’m not happy with paying $70-$100 on my premiums. Let’s see how we can reduce this cost.”
If you’re buying insurance online, you won’t often have the flexibility to make these adjustments once a policy is in place.
And now that you know what they can be, you can make a more informed decision.
Insurance adviser with over 25 years of experience
Bill McGavock is an Insurance Adviser at Opes Insurance. He has over 25 years of insurance and customer service experience. Bill provides personal risk advice and claims assistance for individuals, families, and businesses. He specialises in helping property investors protect their ability to grow wealth. Bill is based in Auckland.
