Find out how you can decrease your term life insurance premiums.
It is not uncommon for people to look for ways to decrease the cost of their life insurance premiums over the term of their policy. A reduction in financial obligations, update of policy beneficiaries, change of employment or retirement can all be key reasons to consider reducing the sum insured in ones life cover policy. Some of the best ways is to:
- Shop around. A reduction or premiums may be done by simply reducing the sum insured or to shop around for a more basic policy option with lower premium charges.
- Adjust your policy. There are steps you can follow to adjust your policy and potentially pay less in life insurance premiums.
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There are a number of steps that can be taken to decrease your level of cover.
- Contact your insurer. You can contact your insurance provider and request a decrease in your sum insured which will then be reflected in your ongoing premium payments. Your provider can also assist you in updating your policy beneficiaries.
- Consolidate super in life cover. There may be some default life cover already stored in a number of super funds that have been opened by different employers and has accumulated over time. Consolidating these into one can potentially save you in premium and fee payments.
- Compare new policies. If you would like to cancel your existing policy and find a new policy all together, it is important to take all of the necessary steps to ensure you are not leaving yourself underprotected and that you are receiving a competitive deal. An insurance consultant can assist you through this process by comparing hundreds of different policy options for you and explaining the different features and benefits available.
- Premium structure. There are several ways you can reduce the cost of your life insurance premiums. One way is to choose the premium structure that is best suited to your needs:
- Stepped premiums start low and become more expensive as you get older, particularly after the age of 50, so they may be more suitable when you are young and starting out in life and wish to save money on your life insurance. Level premiums are calculated on your age at the time of application and they remain the same for the entire life of the policy. While they do cost more than stepped premiums, they may be suitable for those who wish to save money on their premiums later in life when they may have less disposable income.
- Hybrid premiums are in between stepped and level premiums. They cost more than stepped premiums but less than level premiums at the outset of a policy, and they increase until you reach a pre-determined age, at which time they will not increase any. Hybrid premiums might suit someone who is prepared to pay a little more to save money over the long term.
- Increase waiting period. Another way to save money on your premiums is to increase the waiting period. A waiting period is the time you wait after making a claim before that claim will be honoured. The more you increase the waiting period, the cheaper your premium becomes.However, the thing to watch with this is that you don’t cause yourself or your loved ones financial hardship as a result. Unless you have access to other funds when you become ill or injured, you will not be able to pay your medical and hospital bills until your waiting period is over. And if your loved ones receive no benefit for too long a period after you die, they may not be able to pay the mortgage and continue to put food on the table.
- Shorter benefit period. A third way to save on your life insurance premiums would be to select a shorter period over which the benefit would be paid. This is relevant when your life insurance policy includes income protection or TPD cover.A shorter benefit period would mean a cheaper premium, because it translates into less money that the insurer would have to pay you. Again though, it is important to calculate whether the time length opted for would be enough to recover from an illness or injury and whether you would have sufficient funds coming in to allow you to live without hardship.
- Remove CPI increases. Yet another way to reduce the cost of your premiums would be to do away with the option of Consumer Price Index (CPI) increases. This is an optional means of inflation-proofing your policy, where the cost of your premium and the amount of benefit paid are raised every year by the Indexation Factor or by 3-5%, depending on the policy.You can choose to opt out of this inflation protection feature to save money on your premiums, but you need to be aware of the consequences. While your premiums wouldn’t rise with inflation, neither would your benefit amount and after a few years, what you would receive in the way of a lump sum payout or income stream would be worth much less due to the march of inflation.
- Compare quotes. As when buying any form of insurance, or anything at all for that matter, it is important to shop around. And while wading through dozens of different life insurance policies is not something most people enjoy, it will pay dividends if you are looking to save money on your premiums.It’s very important to make sure you compare apples with apples however, as every policy is different and while two might look the same, there may be exclusions or conditions in one that devalue the cover being offered.Using an online comparison site is the best way to compare life insurance quotes, as all the hard work has been done for you by the website and all you have to do is read the fine print.
- Remove unnecessary cover. Just as you can choose only the cover you think you will need, so you can choose to remove those options you are fairly certain you won’t need to reduce the cost of your overall premium.Weigh each option carefully however, as what may seem irrelevant to your situation now may become more important in the future. Again, professional advice from your insurer or adviser would be wise when making such decisions.
Is there anything I need to watch out for when I decrease my life insurance?
Any desire to reduce your life cover for any of the reasons listed above should be met with careful consideration of where you may be leaving yourself exposed. Here are some important considerations to take before reducing the level of life cover.
- Underinsurance. Even though you may have less financial obligation, it is important to consider how your financial situation may change. You may be looking to retire soon and won’t have the same stream of income to rely on. In addition, even if your children are no longer financially dependent, it is important to consider the financial needs of your spouse in the event of your death.
- Changes in health. Many people consider dropping the Trauma feature from their life cover to save on premiums. In doing this you may risk leaving yourself exposed to new conditions that have surfaced since your previous medical underwriting. Even though policyholders may not require further medical underwriting, it is worth having one so to recognise any new conditions that have developed.
- Policy indexation. All life policies are indexed for changes in inflation. Reducing the sum insured can place your policy at risk of not keeping up with inflation.
There are a number of key factors that may influence someone to try to reduce their level of cover and save on their life insurance premiums. These can include;
- Reduction of financial obligations. A reduction in what actually needs to be covered in the event of your death is a key reason to reduce your level of cover. You may have paid off your mortgage, credit card debt or personal loan. Similarly your children may have left home and become financially dependent and not require the same level of cover as previous years.
- Update of policy beneficiaries. People may want to update/reduce the number of beneficiaries in their policy for a number of reasons. Divorce, death, increase in financial independence may lead you to remove beneficiaries from your cover.
- Changing needs and policy options. Your current policy may feature additional benefits that are no longer relevant to your situation i.e. Child Cover, Business Safeguard and Premium Holiday. Removal of these may lead to start looking for a less comprehensive policy.
Can improving my health reduce my life insurance premium?
A key step in reducing the premiums payable for your life cover is to make adjustments to your lifestyle to improve your health. During the initial application process an underwriter will take into account your body mass index, signs of hypertension, whether you smoke, indicators of high alcohol consumption among other factors, can all impact on the premiums payable on your life cover.
Policyholders that are able to show changes to their health since their last medical exam may be able to reduce the premiums payable on their life policy. As an example, if someone is a smoker when they first lodge their application but becomes a "non-smoker" into their policy term, they can apply for their premiums to be adjusted to reflect non-smoker. In most cases insurance underwriters will require the person to have stopped smoking for a period of 12 months before premium payments can be adjusted.