There are a few different tricks here, but I want to focus on just one (the one that probably has the biggest impact). When you start an income protection policy you get to choose your “waiting period”. This is the length of time that you need to be unable to work (due to sickness or injury) before your monthly income protection benefit kicks in. A waiting period is sometimes referred to as a “stand-down period” or a “no pay period”. Typical waiting period choices include 1, 2 and 3 months.
As you’d expect, choosing a longer waiting period results in a lower premium. And the difference in premium between an income protection plan with a waiting period of 1 month and a plan with a waiting period of 2 months might surprise you. To give an example, a 40 year old man insuring $50,000 could save about $300 a year by having a 2 month waiting period instead of a 1 month.
However, the choice can be a bit tricky. It’s tempting to choose a longer waiting period because of the pleasing effect it has on cost - but on the other hand, you need to be totally confident that you can get by without any income throughout the period you choose.
How long would your savings last if you were unable to work? If you have an emergency fund (or sick leave owing) that can keep you going for a few months this might give you the chance to extend your waiting period – and this will keep your premium nice and low.
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