Agreed value vs Indemnity value

Indemnity Value

  1. No income proof required when apply
  2. You will be insured for what you say you earn
  3. Disadvantage ! If you make a claim you need to prove your income
  4. Disadvantage ! If your income has reduced since you applied, your claim will be paid on the reduced amount

Agreed Value

  1. Income proof required when apply
  2. You will be insured for what you have proven
  3. Advantage ! You what you will receive, regardless of changes in your income
  4. Disadvantage ! Such contract 20% higher in cost

Who Can Benefit

Indemnity Value

  1. Employee who earns a regular salary and easy can prove it

Agreed Value

  1. Freelancer
  2. Small Business Owners
  3. Self Employed people



More facts about income protection insurance

Income protection insurance plans offer Australians an opportunity to insure their income against loss of income in situations where they cannot earn a steady salary due to health issues. Income covers that are offered to permanent Australian residents offer both basic compensation perks and additional perks such as transplant surgery benefits, day one claim benefits and death benefits.

Income covers are not only a must for people who want to maintain their lifestyle when they cannot work; but also for those people who have dependants or have to pay monthly bills. The compensation payments received by policy holder can also be used for savings, repayment of loans or mortgages or to pay for other expenses such as school or college fees.


Types of income protection insurance contracts

The two types of contracts that are offered to buyers are:

  • agreed value contracts
  • indemnity contracts.

While cheaper policies may have indemnity contracts as the default option, flexible plans may offer a choice to the buyer. There is a small difference in the cost between agreed value contracts and indemnity contracts for various reasons. These two types of contracts offer different benefits and some of these benefits are mentioned below.

 Facts about agreed value contracts

Agreed value contracts are undeniably better for self-employed individuals and small business owners since these contracts ensure that the policy holder gets a pre-decided compensation amount every month when he files a claim.

Agreed value contracts require the policy holder to provide proof of income at the time of applying for the policy and the compensation amount given to him will be based on the income he earns at the time of applying.

This mean that, if the policy holder’s income reduces significantly while filing the claim then he will not be affected adversely since he will get the pre-decided amount towards compensation payments.


 Facts about indemnity contracts

Indemnity contracts are suitable for employees of firms, organisations and companies who earn a steady income every year. Indemnity value contracts require the policy holder to provide proof of income at the time of filing the claim and the compensation amount is determined by the amount the policy holder files at the time of filing the claim. Indemnity contracts are not suitable for those employees who earn fluctuating salaries and can expect a drop in their salary while filing a claim.

Cost of indemnity and agreed value contracts

Both these types of contracts are available online through insurance comparison websites. Buyers who are looking for agreed value contracts may notice that they have to pay a few dollars every month for agreed value contracts due to the benefits these contracts offered. Indemnity value contracts are cheaper because of the limitations of this type of insurance plan. Depending on various factors such as the type of contract selected, the buyer’s age, gender, occupation and health status; he can expect to pay $7 – $25 towards income insurance every month. Paying premiums in advance once a year or making use of promotional offers that are available on insurance comparison websites can help buyers save money on premiums.

Job change or promotions

Irrespective of the type of contract a buyer purchases, he must make it a point to contact the insurer when he changes his job, gets a promotion or leaves his job since these important events will affect the policy holder’s premiums and the entitled benefits. Failure to inform the insurer on time can not only lead to rejected claims but also a lapsed policy.

Flexible contracts vs. basic contracts

Flexible contracts allow buyers to customize the selected insurance plan as per their own needs. This implies that, buyers who opt for flexible contracts can choose if they want an indemnity contract or an agreed value contract, if they want a short waiting period or a long waiting period and if they want a short benefit period or a long benefit period. Depending on the selected insurer the default waiting period can range from 30 days – 90 days and the default benefit period can range from 2 years – 5 years. Flexible contracts also allow buyers to choose which benefits they want, if they want to opt for additional paid benefits or if they do not want certain benefits. The day one claim benefit is an important paid benefit that should be considered by all buyers who have dependants or have pre-existing health conditions.

What does this mean for you?

  • Opting for an indemnity contract will work out cheaper at first however; if you are a self-employed individual or a business owner then indemnity contracts can work out expensive in the long run especially if you earn a fluctuating income.
  • Opting for an agreed value contract is not a must for employees who have a fixed income. Employees who are on a budget can consider indemnity contracts provided they have understood the tax implications, terms and other ramifications of purchasing such contracts.
  • Income protection insurance plans offer various benefits such as a maximum of 75% of your annual pre-tax income towards a monthly compensation payment; however if you opt for a cheaper contract then you can expect to get lower compensation payments.
  • Although the type of contract you select will be one of the factors that will determine the final cost of the contract, you should remember that your smoking status, your age and the type of work you do will also be taken into consideration by the insurer. Hence if you are on a budget then you should visit an insurance comparison website that offer services such as the use of free online tools to compare policies and get single or multiple quotes from insurers. Insurance comparison websites are easy to use and offer simple tools that can be used by anyone with basic computer knowledge. These websites allow buyers to make informed decisions by providing them with important facts about the policy buyers are interested to purchase.


  Income Protection Life Insurance


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