Written by Aaron Alston
Over the last 12-18 months I have spoken to many clients who have said their Income Protection policies have risen significantly over the last couple of years (there are many reasons for this which I won’t go into detail in this article). Often, a client’s first thought is to cancel the policy completely, however there are many options available to you to help alleviate premium pressure, without being left with no cover.
- Reduce the sum insured – You may be currently insured for $8 000 per month, however you may consider reducing the sums insured to $7 000 per month or $6 000 per month. You may have previously been earning $128 000 p/a which entitled you to $8 000 per month (75% of $128K), however your income has decreased since application to $112 000 p/a meaning you are now only eligible for $7 000 per month (75% of $112K).
- Turn off any automatic indexation increases – Generally every policy anniversary, your sums insured will increase with indexation which increases your total premiums. You have the option to decline indexation increase every year or turn off permanently. If you permanently turn off indexation your cover will remain fixed for the entire term of the policy.
- Reduce your benefit period or increase your waiting period – An example may be a client has a 30 day waiting period on their policy, however they have accumulated 90 days sick leave since they applied for Income Protection. A strategy may be to increase the waiting period to 90 days so your Income Protection policy kicks in once you have used all your sick leave. This strategy will reduce your total premiums; however, you will have to be mindful if you leave your current employer, your sick leave will revert to 0 and you will be stuck with a 90 day waiting period. Other options may be to reduce the benefit period from age 65 to 5 years or 2 years.
- If your health has improved or your pastimes have changed, you may be able to remove any loadings applied to your cover.
- Update your smoker status if you haven’t smoked at all in the past 12 months – This only applies to clients who disclosed they were a smoker at application time.
- Switch your Income Protection policy from Agreed value to Indemnity if relevant – If you are considering doing this, it is important that you read the terms and conditions outlined in your Product Disclosure Statement (PDS), so you are fully aware/informed on what features/benefits you are losing.
- Reinsure – Hudson can explore alternatives to rewrite your policy with another insurer as there may be cheaper options elsewhere. We can explain what existing features/benefits you may be losing before considering this option. Note – You will be required disclose your updated medical history and be comfortable going through the insurance process again.
- There are many strategies available to help alleviate premium pressure, whilst remaining adequately covered. As everyone’s personal situation and circumstances are different it is important you understand any trade-offs/benefits lost before changing your policy.
- If your Income Protection policy is currently managed by Hudson and you would like to discuss, contact 1800 804 296 to organise an appointment.