Life insurance advice: tips to save money as premiums soar

Huge jumps in life insurance costs are hurting households, but there are ways to ease the financial pain without losing cover.

Surging insurance premiums have put pressure on people to review their death, disability and income protection insurance policies, but cancelling cover completely can be financially fatal.

Insurance was one of Australia’s biggest cost increases last financial year, up 14 per cent according to official Consumer Price Index data, but there are ways to save money and keep loved ones safe from crippling debt.

If a health disaster strikes, the four types of life insurance – death cover, total and permanent disability, income protection insurance and trauma cover – may be the only defence to protect your family from poverty.

New research from Compare Club shows income protection premiums have climbed an average 39 per cent in just 12 months, with some sole traders seeing their premiums double or triple.

Compare Club life insurance adviser Lisa Varker said some people were decreasing or cancelling cover to afford their mortgage.

“The cost of living is not getting any cheaper, (but) it would be more costly for many households to be unprotected should life throw a curveball,” she said.

Most types of life insurance can purchased either privately or within superannuation, which has no out-of-pocket costs but it eats into your nest egg. Here are some ways to save.

INCOME PROTECTION

Income protection premiums vary depending a person’s age, health, occupation and other factors, and many people hold cover through super.

If held outside super, income protection premiums are tax-deductible.

“A non-smoking tradie in their 40s on an average salary would be looking at paying an average of $299 per month in premiums if they want to be covered until retirement,” Ms Varker said.

Families should consider education and mortgage costs when assessing needs. Picture: iStock

“There are still lots of excellent value-for-money policies on the market so Australians looking to save money on their income protection premiums need to be looking for a better deal right now.”

Ms Varker said people could find value for money by:

• Considering longer waiting periods, which could cost less “but you may have to wait three months or longer before you can make a claim”. More expensive waiting periods allow claims one month after a health issue hits.

• Lowering the maximum sum insured if you could live on a lower income.

• Changing payout levels – some policies let you claim 90 per cent of your salary for up to six months, while others dropped under 60 per cent after a period.

• Asking a financial professional for assistance before making policy changes such as altering benefits.

DEATH AND DISABILITY

Life insurance pays a lump sum when you die and total and permanent disability insurance (TPD) pays a lump sum if you are permanently incapacitated. They are often lumped together in one product.

Ms Varker said policies typically increased in line with inflation, so “if you don’t need the increase to CPI don’t take it”.

She said people could ask if their insurer had loyalty discounts, and shop around for lower-cost providers – but if switching seek professional advice first.

“Review the levels of cover you have to make sure they are what you need … this amount will change depending on your life circumstances.”

Moneysmart.gov.au has a free life insurance calculator to help people work out what they need.

“If you don’t have a partner, or people who depend on you financially, you may not need life cover,” it says.

“But consider getting trauma insurance, income protection insurance or total and permanent disability (TPD) insurance in case you get sick or injured.”

Tribeca Financial CEO Ryan Watson said a lot of clients were wanting to review their insurance.

“The rate at which risk insurance premiums are going up is just exorbitant, and a common strategy to combat this is to decrease the levels of insurance coverage,” he said.

“However, I must stress that this should only be done after a comprehensive risk insurance policy review has been completed.

“In some instances, significant amounts of premium can be saved by switching insurance providers.

Consider whether using your superannuation to part or fully fund your life insurance premiums.”

TRAUMA

This insurance pays a lump sum in the event of critical illness such as cancer, heart attack or stroke, and is not available inside super.

“Review the sum insured on your trauma insurance cover and whether it reflects your current needs,” Mr Watson said.

“Over time, CPI increases can distort the level of cover you are insured for.

“Look at the type of trauma insurance policy that you have, basic or comprehensive.” This could dramatically affect premiums.