Every dollar counts. By exploring these seven tips, you can reduce your insurance premiums without reducing your risk protection.
1. Reallocating Premiums
Before buying additional insurance, take time to explore your risks and your products to see where you may have too much or not enough coverage. We often find people are over-insured in one area while they’re under-insured in another. When we balance a risk portfolio, we’re often able to bring premiums down while enhancing protection.
2. Turn Term 20 Into Term 10
Many Canadians don’t consider reviewing their insurance mid-term to see if there are ways to save on premiums. However, if you’ve bought term 20 insurance and you’re half-way through your term period, you essentially only have a 10-year term renewal left.
Some of our clients have been able to save 27 percent on premiums by cancelling term 20 insurance and buying a brand new term 10.This doesn’t work in all cases, depending on gender and age, but it pays to get a market quote for your specific situation to discern if you’re eligible to obtain savings.
3. Buy More Insurance
There are some instances when it costs less for you to buy more insurance. It goes against common sense, so this is often overlooked by many insurance advisors when making recommendations for coverage.
In one example, a 39-year-old female was seeking $475,000 in coverage. If she would bump up coverage to $500,000, this individual could save 37.5 percent in her insurance premiums.
Just because a needs analysis suggests a certain amount, doesn’t necessarily mean you should buy that exact coverage. Increase your quote to see if the premium comes down.
4. Get a Market Quote
Make sure your advisor is doing a market quote and you’re comfortable with the quote you are getting. This may seem like a no-brainer, yet too many advisors become complacent dealing with the same one or two insurance companies. For efficiency’s sake, they may not go to the market to seek the very best options for you from a price and coverage perspective.
Sometimes it makes sense to pay a little more for a specific company. But, when we’re talking about pure term insurance, there’s no value in paying more for the exact same coverage.
5. Own Your Insurance Corporately
If you have a corporation, you have the option to own your insurance policies within your corporation or personally. While corporate tax rates in Canada average around 12 percent, it’s likely you’re in a higher tax bracket personally.
So, instead of earning your income, paying personal tax and then paying your insurance premium, it makes more sense to have a corporation own the insurance policy, pay the lower corporate tax rate and then pay the insurance premium. The insurance policy would be a tax deduction to the corporation, but you’d be paying it with lower tax dollars.
6. Bundle Policies
Every insurance company charges a policy fee that is, on average, between $3.50 and $8 per month. You don’t actually see this fee; it’s in your contract.
When you’re working with your advisor you just care what the total premium is, not what the policy fee is. However, if you think about all the multiple policies within your family, you could be paying over $35 per month just on policy fees. Therefore, it may make sense to cancel what you have and bundle all the policies together.
You’ll just need to make sure one type of coverage isn’t dependent on another. It’s important that you’re able to cancel one coverage without it affecting or cancelling the whole policy.
7. Consider Return of Premium
I’m a proponent of “buy term and invest the difference,” comparing the costs of term insurance with permanent insurance and investing the premium difference. But, if you’re not going to invest the difference, return of premium is a good concept.
My family utilizes this strategy with critical illness policies for our three kids. If they don’t get sick, I want to know I can get all my premiums back. This provides protection for our kids as they’re growing up, with hopes that they’ll never become critically ill and that the return premiums might be used to supplement their education savings or other financial goals we may have in the future.
The Bottom Line:
It’s worth the effort to explore your options when it comes to insurance. With a little proactive planning and discernment, you and a credible advisor can balance your risk portfolio to maximize protection and save you money.