Jonathan Cattana : What choices do I have for paying for my insurance premiums

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What choices do I have for paying for my insurance premiums?
When you purchase an insurance policy outside of superannuation, most life insurance companies offer the choice of paying stepped or level premiums. Ask your adviser to explain and explore the choice between these two options.

Basically, a stepped premium increases each year depending on the age of the insured and level premium will only vary if the life company changes their product or increases their premium rates in line with inflation.

So, if you choose to pay your premiums now on a level basis it will be more expensive from day one. If you pay stepped premiums, every year the premiums will move higher with your age because as you get older, your chances of having an illness is higher.

With level premiums you may pay more now, but in the long run the policy is less expensive, when at a time you probably most need it, that is, as you get older. In making this decision you must work out how long you will require any of the personal insurance covers you will need. It’s a fact of life that as we grow older the likelihood of a claim will increase. Also don’t be too short-sighted on how long you will need it for, always be generous with your financial time horizon.

For example, Mr Evans is a non-smoker and earns $85,000. This graph shows his income protection on stepped versus level premiums. As you can see, when Mr Evans turns 50 the stepped premiums become more expensive.

Insurance tips
1. If you are a smoker please stop smoking now. Not only will it significantly reduce your insurance premiums, but you will live longer.
2. Some life insurances companies offer two options of the same product. Choose the product that suits your needs best—don’t always go for the cheaper option.
3. Make sure your insurance coverage is worldwide, 24-hours a day and seven days a week.
4. You will need to carefully qualify with all life companies what their own individual definitions are for words such as disability and disease and you need to understand each policy.
5. If you have separated in marriage and the private school fees are being paid by your ex-spouse, make sure that they are insured. I would ask him or her for evidence of the insurance policy contract.
6. If you are unsure, discuss with a financial adviser what your insurance needs may be. Make sure you take your spouse along with you.
7. Life and TPD cover can be taken out through your employer superannuation scheme. This means when you employer pays your superannuation contribution to your superannuation fund a small amount will go to pay the insurance premiums for the Life cover and TPD. Ask your employer’s human resources department for the designated financial planner appointed to look after your company’s corporate superannuation. The planner can assist with increasing your cover. This can be a very tax-effective way of covering your family in the event of your death or if you’re unable to work for the rest of your life in any occupation.
8. Be careful of the cheap offers that come through your letterbox. The amount of premium you will pay will directly relate to the amount of cover you will receive.
9. In regards to TPD, ask for guidance on the definition of ‘own occupation’ and ‘any occupation’.
10. When competing any applications for insurance ensure that you disclose all information truthfully and accurately. If a claim is made and information provided to the insurer was not correct at the time of submission the insurer may not pay out the claim.

Questions you need to ask yourself
• How much debt do we have?
• If either person passes away, how much in foregone earnings would we miss out on?
• Think about what it would mean to your family if you could not earn an income for the rest of your life?
• Find out how much can life and TPD insurance you can get through your company’s superannuation insurance group scheme.
• Is your life insurance cover adequate enough if you pass away?
• What are your options if you can’t get insurance?