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Keeping your insurance cover in financially unsettled times

Many New Zealanders are suddenly finding themselves worried about their finances and in these uncertain times cutting costs can make a lot of sense. While it is not a good time to cancel insurance, there are some things you can do to help manage the costs.

Why you should keep the policies you have

With so much uncertainty out there, insurance is one of the only certain things we hold, and this becomes an even more valuable asset in times like these.

Some insurance providers are also responding to this unprecedented crisis with changes to what is covered in some policies – which means the terms of any insurance policies you already have in place may be the best you will ever have. If you cancel policies now and intend to replace them at a later date, you may also find yourself with exclusions you don’t currently have. If you, or a family member, were to have a new health problem this could impact your ability to get coverage.

How you can reduce your insurance premiums

There are a number of mechanisms that you can use to adjust your premiums, and there are pros and cons to each. The best solution for you will depend on a number of factors, including your age, your financial situation and life stage. That is why we always recommend talking with your adviser, as they can work with you to find the best solution to suit your needs.

Premium Holiday

Some insurance providers allow you to take a premium holiday. This means that if you can show you are experiencing financial hardship, they may waive your premium for a period of time, during which time you are still able to make a claim.

It is important to note that this can only be done once in the lifetime of your policy. 

Premium Suspension

A premium suspension gives a break from premiums for up to 12 months. During this time you cannot make a claim, but you can pick your policy up again with the same terms at the end of that period. As with the premium holiday, you can only do this once in the lifetime of your policy.

Some providers have added on criteria specific to COVID-19, with a 20% loss of income sufficient to prove financial hardship.

Reduce sum insured

Reducing the sum insured will also reduce the premiums you need to pay.

This can be a good mechanism to use if you are younger, as there are built in special event increases in lots of policies that allow you to increase your amount insured in the future without further underwriting. These include things such as a marriage or civil union, birth or adoption of a child, taking out or increasing a mortgage, a child starting full-time tertiary study, an increase in salary or purchasing property. Read more here.

Increase excess

Increasing the excess on some insurance policies is an easy way to reduce the premiums, but if times are hard you need to be realistic about what excess you can afford in the event of a claim. It is also important to find out if you will be able to reduce the excess again in the future.

Increase wait time

For policies, like income and mortgage protection, you can adjust the wait period before you start to receive a payout, which will impact your premiums.

How is Covid-19 covered?

Just because every loss, frustration and stressor of COVID-19 isn’t covered by insurance doesn’t mean nothing is. These are some of the ways you may be able to claim on policies.

  • Life cover: If you have life insurance there are no changes to what is covered – this means if life cover is already in place and the insured person dies from COVID-19, they are still covered
  • ICU benefit: Some people who contract COVID-19 may spend some time in intensive care. Most trauma policies include ICU cover, which is triggered after a certain number of days in intensive care, regardless of the cause
  • Chronic lung failure: Some long term health impacts of COVID-19 could be covered by trauma insurance
  • Income protection: If you became unwell and were off work for an extended period this could be covered under your income and mortgage protection policies
  • Redundancy: Some income protection policies have redundancy cover

It should be reassuring to know from a claims perspective it is business as usual (even if everyone is working from home).

Before you cut and cancel, or assume something isn’t covered, talk to your adviser. We want to work with our clients to get them through this. We really are all in this together.

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Smooth out premium payments with a level term policy

With the low interest rates currently available, you may find yourself with a little something extra in your budget. To get the most out of it, this could be the perfect time to consider getting a level term cover policy for your life insurance.

There are two ways you can set up your life insurance cover. While the cover you receive is the same, the way the payments are set up – and how much you pay over the long term – can differ. It is definitely worth learning more and considering your options.

What is a Yearly Renewable Term (YRT)?

Also called a Stepped Premium, this is the most common set up, and represents the vast majority of all life insurance policies. The premiums increase every year, due to both inflation and as the policy holder becomes more of a risk to the insurer. Of course, your sum insured will also increase each year, protecting it from inflation.

The advantage having a YRT is that upfront, when you first get the policy, you are paying the cheapest premiums. As many people first get life insurance along with a mortgage or a child, price is an important factor. The downside is that it just keeps going up, which can lead to people reducing or abandoning their policy – and then not having cover when they need it the most.

What is a Level Term?

With a level term policy, you have the same type and level of cover as a YRT policy, however the way you pay your premiums is different.

The premiums are locked in, and you pay the same monthly premium for the term of the cover.

The insurer is committed to providing you with the policy for the same premium for the fixed term. This doesn’t mean you are locked into that policy, however if you break it you will lose the cost saving advantages of the level term.

Level term policies generally don’t have the inflation increase options that YRT policies do (although some offer fixed indexation, generally 2% per year).  Considering a level term policy means being open to taking a long term financial view.

So how does a YRT policy compare with Level Term policy?

With a fixed term policy your very first premium will be roughly double what you would be paying for your first premium on a YRT policy. However, as the infographic below shows, over the term of the policy you are looking at saving a significant amount of money.

In the past it may have made sense to reduce cover as you got older and life circumstances changed. However, many people are having children later, those children are living at home longer, and with the increase in house prices people are paying off mortgages for longer.  And it isn’t just life cover – trauma cover is often tied in with life cover and with constant medical advances we are surviving medical trauma that we may not have previously, meaning we’ll be wanting that cover for longer.

Most insurers offer level term option alongside the YRT option but some may have exceptions in the fine print as to when they may raise the premium, which is just another reason it is always worth talking to your adviser as they know all the ins and outs of the different policies.

If the concept of a level term appeals but you are not sure about having all your cover locked in at the same level for an extended term, you can have a bit of both in the same policy. Setting a baseline of level cover, and then the rest as YRT gives you flexibility when circumstances change and you may wish to change your level of cover. This is an area where having an adviser to talk to can make a big difference to having the policy and cover that is right for you.

If you think a Level Term policy might be right for you, or just want to know more about how it all works get in touch with one of our advisers today.

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