Unfortunately income protection can be a very costly albeit essential expenditure for people in certain circumstances. Our advisers are able to search the market, sometimes using specialist providers to find the most competitive price, however sometimes people may have to spend more than they would have exepcted.
There are a number of ways in which you can reduce the cost of your premiums, such as:
- Extending the deferred period
- Avoiding over over-insuring
- Getting covered young
- Reducing the plan term
- Reducing payment period
Each suggestion is outlined in more detail below.
Extending the deferred period
The deferred period is the time before an income protection policy begins to pay out its monthly benefits to the policy holder. The shorter the deferred period of an income protection plan, the more expensive it is likely to be.
For example moving from a deferred period of 4 to 13 weeks could reduce the cost of your monthly premiums by around 40-50 per cent.
Many self-employed and manual workers in particular won’t receive any sick pay benefits from their employer, therefore often opting for a waiting period of 4 weeks - the shortest available.
The shorter the deferred period however the more likely it is that a claim could be made. In order to offset the increased likelihood of a claim, insurers raise the cost of the premiums.
Income protection insurance is designed to offer financial support over medium and long terms (up until retirement) and isn’t designed for a short term solution. Ideally being able to save up to three months worth of savings and choosing a plan with a 13 week deferred period would significantly lower the premiums.
Don’t over-insure
Not allowing yourself an adequate level of cover is always a danger, but it’s almost as important to make sure you haven’t over-insured yourself either. Obviously any extra cover will come at a cost, so if you insure yourself unnecessarily it will cost you.
You may find that covering 50-60% of your salary is too expensive, if so reduce your level of cover, only taking into consideration how much your essential monthly outgoings would really amount to.
If you are ill or injured it’s quite likely that your monthly outgoings will be reduced. For example you won’t be travelling to work and your leisure expenditure will most likely be reduced.
Try and calculate how much you would need for:
- Rent or mortgage payments
- Council tax and utility bills
- Food
- Other credit/loan repayments
- Internet and mobile phone if you can’t manage without them.
Get Covered Young
The age you are when you take out your income protection insurance will certainly affect the price you pay. Obviously there is nothing you can do about your age other than take heed and don’t delay! Every birthday, and for some insurers every half birthday, will increase the cost of your cover.
The longer you leave it, the more you will have to pay. You can also educate others to take on the income protection whilst they are young to save themselves money in the long run.
Reduced Term Plan
Although the national retirement age currently stands at 65 years old it is not always necessary to continue your income protection to this age. If you plan to retire earlier, at age 60 for example then it would be unsuitable to continue your income protection past this age. Not only would you pay for an extra five years, but your premiums would also be more expensive.
Lowering the age for your policy to end from 65 to 60 years could bring the premiums down by as much as 25 per cent.
Reduced Payment Period
It is possible to reduce the monthly premium by reducing the length of time you might receive benefits for. Normally income protection plans pay out until the end of the plan or until the policy holder is able to return to work.
You are able however; to put a restriction on the number of years you would receive benefits for. For example, allowing benefits to be paid for a maximum of five years only, instead of until your retirement age. There is the danger however that you do not recover in five years and are unable to return to work and no longer receive benefits.
Endsleigh can provide you with detailed advice on the benefits of income protection insurance along with ensuring your cover is adequate for your specific needs. As our advisers are independent they are able to search the UK market on your behalf looking for the most competitive solution.
Click here to speak to an adviser or call 0800 389 2193
