Reader question: How can I reduce the premiums on my income protection insurance?
If you have been looking at quotes for an income protection policy and they are at a level that is beyond your budget then there are a number of options available to reduce these premiums. Obviously, reducing the premiums on any type of insurance will ultimately reduce the level of cover, however, with regards to protecting your income, some cover is better than no cover.
Increase the period before benefits are payable
This is known as the deferred period and it is the period from when you are unable to work, due to illness or accident, and when you start receiving an income from your policy. The longer this deferred period is the cheaper the premiums will be. Work out how much income you will get from your employer if you are unable to work and by using any savings you may have you could extend the deferred period on your policy, therefore reducing the premium.
Reduce the payment period of your policy
When it comes to the type of income protection policy you buy, you have options. The most comprehensive type of income protection insurance is known as 'Full' income protection insurance and this will continue to pay an income until you are able to return to work or the end of the policy term, which in some cases could be your retirement date.
There is another type of income protection insurance known as 'Short term' income protection. With short term income protection you can choose a maximum benefit payment period of 1, 2 or 5 years. Some short term income protection policies can be up to 3 times cheaper than full income protection, but remember, you will receive significantly less in terms of benefits and it may leave you exposed if you suffer a long term illness. You will need to make a judgement on whether the reduction in the premium is worth foregoing the cover provided if you are off work for an extended period.
Decrease the level of income provided
It makes sense, if you can afford it, to cover as much of your income as possible so that you do not suffer hardship if you are off work. You can usually cover up to a maximum of 60-70% of your gross earnings. It may be, however, that a higher level of cover will make the premiums unaffordable. It is worth remember ing that income protection benefits are paid tax-free and you are able to receive additional government benefits such as Statutory Sick Pay on top. If premiums are a little more than you can realistically afford, try bringing down the amount you are insured for and only cover the essentials. Another important point to consider is that if you are receiving sick pay benefits then your spending is likely to reduce as you won't be in a position to visit your favourite restaurant or go to the theatre at the weekends. Reducing the income required will make a significant difference to your premiums.
Reduce the term of your policy
As mentioned above you can reduce the payment period of your policy but you can also reduce the actual term of your policy. Typically an income protection policy will continue covering your income until retirement but if you reduce that period down to, let's say, the period until your children are independent then this will reduce the policy premiums.
Like all insurances the cost will vary from one provider to another. So by shopping around you could reduce the cost of your premiums, but make sure you are comparing 'like for like' in terms of the cover provided.
I would always suggest that you speak to an independent income protection specialist when considering the best and cheapest income protection policies. If you don't already know one, most people don't, then I have personally vetted the service provided by one income protection specialist*. Simply complete the short form and they will call you back at a time that is convenient for you. If you decide to take a policy with them you will qualify for £50 cashback.
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The younger you are when you take out an income protection policy the cheaper the premiums will be. Although you will be paying these premiums over a longer period you will also be covered for a longer period and paying a lower premium in the process.
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