Today's Gain - Tomorrow's Pain

With so many expenses rising, all of us are looking out for ways to save on anything we can.

Many people are looking at their insurance portfolios to find savings opportunities.

Savings in insurance premiums can come from a variety of sources including the following:

Get the same cover at better rates

People are often misled by unscrupulous brokers when searching for savings in this manner.

Two main things can go wrong.

The first is that replacement insurance may be cheaper because it is in fact inferior. Most people think of life, disability and dread disease cover as being the same from every supplier. It isn't. There is some prettty cheap and nasty cover out there that may be completely unsuitable for you, so it is really important to look into the detail of what you are being offered if it is cheaper.

The second common mistake is that a product is presented as having a lower premium, but on closer inspection it is only lower at the outset and it escalates in the future - sometimes resulting in a far worse deal than the one you have. Human nature is to only consider the present and defer consideration of the future until it becomes the present. This can be expensive.

Brokers who make a dishonest living by "churning" policies - that is, replacing existing policies, usually prey on people who do not examine the details - they look only at the premium on the quotes front page and assume they are getting a better deal.

Reduce Cover

I have not often met an individual who is over-insured. Reducing cover should only be done with careful consideration of the consequences you had in mind when you first took the cover. When times are hard (like now) the financial impact of a death, disability or dread disease is worse than ever.

Premium Restructuring

Despite the warning above regarding changing to a lower premium that becomes a higher premium in the end, it may be better to do this than to reduce benfits. There are three main premium structures out there that result in varying rates with a given insurance company for identical benfits.

The first is known as the "level premium basis". The premium quotes is guaranteed to stay the same (except for any voluntary escalation you may select) for a specific period of time.

The second is the 'compulsory escalation basis". The premium starts off lower than for the level basis, but escalates at a fixed rate per annum (often 5%). Eventually it becomes more expensive than the level premium, but this can be justified by comparing this cost with most other costs that escalate annually. 5% seems like a reasonable average price escalation and you may feel that since your income probably will also escalate at least at this rate, you are paying the same in real terms. The third premium structure is known as the "age rates basis". In this case your premium is increased every year (or longer period)based on your age. The premium would be the same each year as it would have been if you applied for the policy the first time in that year. This premium is in many cases the lowest of the three options initially. It is necessary to look carefully at your quote to see what future premiums may be. Some companies give an assurance that when the guarantee period expires and your rates come up for review, that they will not increase premiums beyond a certain threshold. This is also an important factor.

Is there a better deal out there?

Sometime there is a better deal, but it is a composite picture including cost of cover, quality of cover, premium structure and various issues like flexibilities, underwriting approach, claims process and payouts.

I am becoming very aware that despite all the laws set up to prevent it, many brokers are being persuaded to push a particular company's product based on incentives like overseas holidays and because of this, they turn a blind eye to the pitfalls of certain products and push them enthusiastically and aggressively to the client's detriment.

A broker's disclosure note is required to disclose the percentage of his income from any one company that exceeds 30%. Be warty when almost all income comes from a single product house - you have to consider that your advisor may not be an adviosor at all, but simply a representative for the company that gives him the best deal.

Your finnacial advisor should be comparing options for you and advising based on a range of factors, not just price.