How to reduce the cost of premiums

This article is part of
Guide to financial resilience and protection

This means it might be worth reducing the level of cover for IP, which in turn would reduce the amount of monthly premiums.

Mehta explains: "Does the client need to have the maximum amount of cover right now? What other income or savings could they have that means their IP plan could be used to top-up whatever else they have?"

Getting the level of benefit right, to match the need, is crucial but can be a big influence on the annual cost to a client (see the box-out example below).

Kevin Paterson, managing director at Enduralife, concurs: "If affordability is likely to be an issue it might be worth either reducing the cover and premium accordingly to make it affordable in the short-term, but at the same time, consider cheaper alternatives – as long as there are no medical underwriting issues."

He suggests, for example, using decreasing term for level term, or family income benefit in place of term assurance when it comes to writing life insurance policies.

It could also be worth deferring the start of the payout. For example, if an employer offers three months of sick pay, and the client has enough savings to cover an additional three months comfortably, it might be worth opting for a policy that has a six-month deferred period.

From personal experience, the cost of my own income protection was reduced noticeably thanks to my current employer having a generous 12-month sick pay scheme as part of the overall health and wellness benefits (which includes private medical insurance). 

Consider all aspects

It is important, therefore, for advisers to consider all aspects of a client's financial and employment benefit situation.

This also includes looking at the mortgage, according to Alan Lakey, founder of CI expert and adviser at Highclere Financial Services. 

He says: "One strategy I use is to check the amount that is owed on the mortgage and compare this with the insured sum currently shown on a mortgage protection plan.

"Many existing plans have interest rates between 8 per cent to 15 per cent, which means the insured sum has fallen more slowly than the mortgage. This offers an opportunity to reduce the sum to make a saving on the premium."

Alan Richardson, protection specialist at LifeSearch, says it is also useful for advisers to reassess add-ons that might increase the premium, similar to how a client might reduce the cost of pet insurance by removing certain elements such as boarding stays.

He comments: "In some cases, added options can be removed, or cover can be reduced from comprehensive to basic." For example, if a provider offers doctor services that are costed into the price of the policy, this could be exchanged for the provider's own member advice line if one is offered.