Income Protection Explained
Income Protection is a valuable part of anyone’s insurance program. When you depend on a personally generated income you can’t afford to lose it, as a result of an illness or accident. There are some key features of income protection which need consideration. – Benefit period – Waiting period – Agreed Value OR Indemnity – Extended OR Basic
Benefit Period This term refers to how long you will be paid if you are on claim. The standard benefit periods offered are: – 1 year – 2 years – 5 years – to age 55, 60 or age 65
There are a number of reasons why there are different periods: – Your occupation is a major factor. High risk occupations where this is a greater chance of claiming such as heavy manual work are usually restricted to shorter benefit periods. – Retirement age. This is why there are plans which cease at age 55, 60 and 65 – so that you can mirror your intended retirement age. – The other main reason is to give people choice and flexibility with price, as the shorter policies are generally cheaper.
Which benefit period is the best?
Generally, the longer the better. The longest you can afford and the longest you able to get based on your occupation. If you were to have a long term illness, a guaranteed income until you were 65 and had reached retirement age would provide you and your family with financial protection.
Waiting Period
This term refers to how long you have to wait before being paid a claim. The standard waiting periods offered are: – 14 days – 30 days – 60 days – 90 days – 1 or 2 years
There are a number of reasons why there are different waiting periods: – Employees have sick leave entitlements, so long term employees maybe able to take a longer waiting period, as they have a large number of sick days available to them to use first – Self employed people on the other hand who have no sick leave, need to make sure that they are covered with the shortest waiting period they can afford, so that their cash flow continues – A 2 year waiting period is very common where a person has a ‘total but temporary benefit’ under their superannuation plan – so they tailor their personal income protection policy to start at the time that the income under the total but temporary benefit stops. The other main reason is to give people choice and flexibility with price, as the shorter waiting periods are generally more expensive.
March 06 2011 | Why You Need Income Protection Insurance | Comments Off