Would you like an extra $825,000 in you pocket?

Insurance is so boring. But it is a necessary evil.

When it comes to renewal or choosing a new policy we instinctively think about cost. I know I do. As medical professionals income protection is a must and it is expensive because the amounts insurance are, well, a bit big.

But as the saying goes if you pay peanuts you will attract a monkey and we all know how hard it will be to look after a monkey.

But sometimes going more expensive saves you money in the long term. And I am not talking about insurance policy benefit.

Oh no. I am talking about premiums and specifically green notes in your pocket.

In other words, it might make sense to pay more insurance premium.

Now you are thinking I have gone nuts and want to immediately contact my wife to have me institutionalised. She will happily oblige so before you pick up the phone just hear me out.

Logic says that if you pay more for one policy over another per month you lose out not just now but over the life of the policy.

But as one of my clients found out, this is not quite true.

You see I have a fantastic Financial Planner who visited one of my GP clients and discussed Income Protection Insurance, something I believe everyone on the planet needs to have if they are working and their lives depend on that income.

Anyway, he offered them a choice. $X dollars for a stepped premium policy and $Y dollars to optimum premium policy. And the $Y policy was over twice the price of $X. You would think no brainer at this stage.

But there’s something else. You see the premium on the stepped policy goes up as you get older whereas the optimum policy does not. And if you are a youngish doctor you may think you pay a lot now but wait till you get into your 50’s and 60’s.

So, over time you may find that the stepped policy costs more than the optimum policy. When my Financial Planner did the calculations, it worked out that over time the Optimum policy would be $825,000 cheaper than the stepped policy.

Now my GP client still may take the Stepped policy. And before you think they need to be institutionalised hear them out too.

They migrated from the UK about a year ago. And they may go back to the UK in the next 5 years. If they decide to go back the Stepped premium makes sense. If they deicide to stay the Optimum Premium makes sense.

When it comes to making financial decisions, you need all the information, and everyone’s circumstances are likely to be different. This is where you advisors make a difference. In this case there is a potential saving of $825,000 when initially it looked like there was no advantage.

If you have income protection think hard. Is it worth getting a review? Do you fancy $825,000 in green notes which you can spend on yourself and your family. Or would you rather give it to the insurance company who will give a bonus to their team – who will probably go to Hawaii – with your money.

If you would like a review of your insurance polices contact us HERE and we will put you through to our fantastic Financial Planner.