How to save money on your insurance

Posted by: Inform on 23 March 2007

When I look at insurances (for example health insurance, life insurance, or income protection) with a client the first thing is to make sure they have good cover that does what they need it to.

However, it's also part of my job to make sure my clients aren't spending money on insurance they don't need. Here are a couple of ideas to keep control over your insurance premiums.

Begin with getting the right types and amounts of insurance.
Know what insurance you need and when you need it - and what life events change this. For example the need for life insurance usually comes about when you have dependants to take care of, or debts that you don't want to leave to someone else. Once the debts have gone - or the dependants have - the need for life insurance will often decrease, or disappear totally.

This sounds simple but you'd be surprised how many people are wasting their money on life insurance they don't need. The key thing to remember - if the reason you got cover no longer exists (and isn't going to come back!), the cover shouldn't either.

It's also important to have the right amounts...
Don't insure more than you need. We often come accross people who have more life insurance than they really need. In a recent case, I worked with a 27 year old client who had $600 000 life insurance cover - which he'd arranged through his bank. I asked him what the amount was for - and he told me it was simple - $600 000 was around about 10x his income.

He and I worked through his situation, and found out that if he died there was a mortgage he'd like paid off, so that his partner wasn't left with it. And that was it - the only other thing that was important to him was to leave some extra money to has partner as a buffer. In his case, we were able to knock his life insurance cover down by about $300 000 - which saved him about $24 a month.

So, the message here: when you get cover don't just pull a random sum out of the air - get the amount of life insurance that your situation requires - not less, because that can leave you or the people you care about high and dry - but also not more, because that's an easy way to waste money

Let's take a look at Health insurance and Income Protection insurance - these are examples of types of insurance you can tailor to save yourself money...

Choose the right waiting period.
One of the best ways to have control over your Income Protection premiums is the waiting period you choose. If you're disabled, your Income Protection payments won't start until after your waiting period (also called a no pay period) - it's basically how long you can continue without an income. The difference in price between an Income Protection plan with a waiting period of 1 month and a plan with a waiting period of 2 months might surprise you. To give an example, a 40 year old man insuring an income of $50 000 could save about $300 a year by having a 2 month waiting period on his income protection instead of a 1 month.

So to keep premiums down an option is to extend the waiting period - as long as it's realistic and you really can get by during that period. A long waiting period is obviously a really bad idea if you can't get by during that time without an income.

Have major medical health insurance that covers 100% of your major medical costs.
Some plans out there - especially older style plans - will only ever cover 80% of your costs, and you have to come up with the rest.

If you had to have really expensive surgery or hospital treatment, this can quickly become a problem. I recently handled a claim for a client. He was going into hospital, and the private hospital that he chose said the procedures he needed would cost up $40 000. And then on top of that was about another couple of thousand worth of diagnostic expenses before he was admitted.

Most claims aren't that high - but lots are - and they can be even higher, especially if someone needs more than one procedure. So, make sure your health insurance is 100% cover, and includes high cover for diagnostic procedures and tests, because those can be expensive too.

Don't bother with cover for day-to-day medical costs like GP visits, dentists, and prescriptions.
So called "Comprehensive" health insurance policies which do cover "everyday" costs (like GPs and prescription costs) are about three times more expensive than a good major medical plan - they're becoming rarer - and for good reason - they usually aren't good value for money.

So, stick with what's important - get a health insurance plan that offers quality cover for your major medical expenses - surgical and non-surgical costs, and hospital care. If you're concerned about the day-to-day expenses, an idea is to get a major medical policy, find out what you would be paying for a comprehensive plan - and then put the difference in premiums into a savings plan, like your own 'health fund'. That way, if you don't end up using that money it'll wind up in your back pocket, not the insurance company's!

Have an excess.
Most NZ health insurance plans will offer a wide range of excess options for you to choose from. his is one way to have control over what you'll pay for your health cover - the higher your excess the lower your premiums will be. An example: most people can save themselves over 20% on their health insurance premiums by switching from a $0 excess to a $250 excess.

Finally... remember to review.
Review your insurance package at least once a year. If you have any significant changes in your situation (for example taking on debt - or getting rid of debt) then review when those happen too. But make sure you're reviewing at least annually - your situation changes over time - so just make sure that your insurance package keeps up.