Best 5 Life Insurance Hacks for 2020

Want to get the best value for money with your life insurance?

Easy Australian Life Insurance Hacks to help you get more bang for your premium

Life insurance is one of those products that you know you should have, but you buy it with a heavy heart. It does seem like a waste of money, doesn’t it?

In reality, good life insurance cover is valuable but only at the right premium, and of course, only if the Life Insurance and does the right thing and pays the claims if it eventuates.

Life insurance is a product that is often sold through financial institutions. It is therefore a highly regulated industry, but even so, you will undoubtedly find unscrupulous insurance companies. These companies generally won’t pay claims, or delay paying claims and target the vulnerable to sell a policy.

Life insurance is a highly complicated numbers game, but in essence insurance companies price the premium they charge higher than the claims paid out and administration expenses. That’s simply it. So for the majority of policyholders, they will in fact end up in a loss position.

That’s not to say, that life insurance is bad and is a scam. If you consider a policyholder similar to someone playing lotto, and instead of winning the jackpot incurring significant hardship, isn’t buying protection for this hardship something you would want to pay for?

There are ways however to save money in having life insurance cover. If you want to keep your life insurance but save money, then read on!


Hack 1. Premium Waiver

Ask the Life Insurance Company for premiums to be waived due to financial hardship

Some readers may not understand what a premium waiver is, so I will define this first.

A premium is the amount of money that a policyholder pays to the life insurance company in return for coverage if an event occurs (such as death, total permanent injury, heart attack and so on).

A premium waive is when the life insurance company tells the policy holder their premium is foregone but the coverage remains in place. For insurance jargon geeks, the policy remains In Force while no premiums are being receipted (paid by) the policyholder.

This is often also referred to as “waiving” the premium.

Life insurance companies understand that the cost of keeping a policyholder In Force is less than acquiring a new one. Therefore their marketing or customer service teams are often instructed to try and save a policy from lapsing (insurance jargon for a policy going Out of Force or Inactive). To do this, they allow the premium to be waived if a policyholder contacts them and advises that then want to cancel their policy.

This hack, is therefore to contact the life insurance company and ask for premium to be waived due to financial hardship. And for most policyholders this is true. Without a premium waived many policyholders will not be able to afford to keep the policy and will let it lapse anyways. So ask for the premium to be waived.

You will find that the life insurance company will waive at least one month’s worth of premium. In some cases, up to a year’s worth of premium has been waived, with the policyholder calling the customer service center and continually asking for premium to be waived (however this scenario is usually due to operational incompetence).

Hack 2. Premium Reduction

Ask for the premium to be reduced without reducing the coverage

If you can’t have your premium waived, ask for a premium reduction. The company is usually more willing to perform a premium reduction if they decline to waive the premium. But hey, you know what, most life insurance companies do not have administration systems to properly process a premium reduction. They will stuff it up and possibly overcharge you instead! So be very careful if they do agree to a premium reduction, because they might charge you more (accidentally) instead. Conversely, they might actually undercharge. If that’s the case, I will leave it up to you to inform the life insurance company.

Hack 3. Reduced Premium Reduced Sum Insured

Asked for a premium reduction that correlates to a reduction in coverage

If you don’t obtain either a premium waiver or a premium reduction, then you can ask for your coverage (sum insured) to be reduced resulting in a premium reduction.

Again, most life insurance companies won’t be able to calculate and apply this correctly to your policy. So make sure that this is reflected correctly and that you are not overcharged.

Hack 4. Use tax schemes to your advantage

Australia provides for indirect tax advantages with purchasing life insurance. Seek and use them

Did you know that in Australia if you pay for your life insurance through your superannuation (retirement savings) it may be cheaper than out of the pocket of after tax earnings? There is a tax concessionary rate that superannuation funds are entitled to, of 15%, for some types of life insurance. There are some super funds that have an agreement to pass the 15% tax concession to the life insurance company, and thereby the life insurance company passes on the saving to the policyholder by giving them a 15% premium reduction (effectively a 15% discount).

I’m sure countries around the world, have tax schemes that are beneficial to the policyholder. Find them and use them.

Hack 5. Credit Card Dishonors

Incompetent processing of premium refunds may give you free money

I don’t condone this hack, but I will share it with you and you can decide what you want to do with the information.

In many life insurance companies there are instances whereby they process a premium refund to a policyholder without waiting for the original premium paid to clear.

This occurs when the policyholder pays via credit card but the payment bounces in a weeks time (usually unknowingly or unintentional).

The the scenario plays out as follows:

a) Policyholder pay premium by credit card.

b) The Life Insurance Company processes the credit card transaction “manually”, usually over the phone.

c) The policyholder asks on the following day for their policy to be cancelled, and for their premium paid to be refunded.

d) The Life Insurance Company pays back the premium to the policyholder,

e) the original credit card transaction (after a week or so has passed) bounces either due to credit card threshold being breached, invalid account details, or a disputed credit card transaction has been put forward to the bank.

Why is a bounce back only found after a week or so later? It’s because the banks and VISA, Mastercard and Amex are slow with processing manual invalid credit card transactions.

Therefore, in this situation, the policyholder has essentially received money for free!


Conclusion

There are many life insurance hacks that policyholders can apply. By far the easiest is to ask for premium to be waived due to financial hardship. Not only is this worthwhile for the life insurance to waive (because in the end it’s cheaper than acquiring a new policyholder) but it’s easier for them to process on their administration systems!

There are also several other ways to save money on life insurance. The tax hack can be quite complicated, hence I would recommend seeing a financial advisor.

Good luck with saving money on your life insurance!