- Basic plans are cheaper than Premium plans but for many reasons Basic plans are those plans that are offered for cheap costs with longer waiting periods, shorter terms and shorter benefit periods.
- Basic plans generally have indemnity contracts as a default option and buyers may be given the option to switch for an agreed value contract for an additional cost. Basic plans may or may not have limitations such as exclusions, premium loading fees, low compensation payments and three or less additional perks.
- Basic contracts can cost as less as $7-$10 a month whereas premium contracts may cost as much as $12 – $25 a month. Premium contracts are those plans that can be considered value for money in the long run since these plans offer a range of benefits that are not limited to maximum compensation payments, a death benefit, day one claim benefit and surgery benefits.
- Premium plans usually have lesser limitations, more acceptable terms and a shorter waiting period along with a longer benefit period and term.
Five factors that affect the cost of income protection
1. The occupation of the buyer
White collar employees are considered as low risk buyers compared to blue collar employees and self-employed professionals. It should be noted that doctors, lawyers and certain other professionals may be charged slightly higher premiums that those buyers who work in offices, do not travel much and are at a lower risk of injury and illness.
2. The age and gender of the buyer
Women are considered as low risk buyers as compared to men. Women that are 35 years will be offered cheaper contracts compared to men who are 35 years. Younger adults are considered as comparatively lower risk buyers compared to older adults who have or are likely to develop health problems. A 45 year old male buyer will most likely have to pay higher premiums than a 35 year old male buyer.
3. The heath status of the buyer
Pre-existing health conditions do not make a buyer ineligible to purchase an income protection insurance contract but pre-existing health conditions may cause the buyer to pay higher premiums, opt for a contract with premium loading fees or exclusions. Buyers, who smoke, drink more than the safe dosage of alcohol or buyers who play sports and indulge in risky activities will be asked to pay higher premiums compared to safe buyers.
4. The type of contract and the coverage amount
- Indemnity contracts are offered for lower premiums due to one reason; these contracts do not ensure that the compensation payments will stay the same if the policy holder’s salary decreases with time. This means that, if the policy holder earns $9,500 a month at the time of the applicant but earns $3,000 a month at the time of filing a claim, then at the time of filing the claim, the policy holder can expect to receive a percentage of the $3,000 towards claim payments.
- Indemnity contracts are ideal for employees who know how much they will earn in a year or two from now and do not have to worry about fluctuating salaries. Agreed value contracts are offered for higher premiums since unlike indemnity contracts, they will pay the maximum compensation payment when a claim is filed.
- Policy holders who have purchased agreed value contracts can expect to receive compensation payments that are not affected by factors such as decreased income. This means that, if the policy would earn $9,500 at the time of application but earns $3,000 now, then the policy holder will receive a large percentage of the $9,500 towards claim payments.
- Agreed value contracts are ideal for those self-employed entrepreneurs who are unsure how much they will earn in a year from now. The higher the coverage amount the higher the premiums the policy holder will have to pay.
5. The waiting period, benefit period and term of the contract
Buyers who have to wait for 2 weeks before they can file the first claim will be asked to pay higher premiums than those buyers who have to wait for 6 months before they can file the first claim. Buyers who can enjoy the given benefits for 5 years will have to pay higher premiums than those buyers who can enjoy the given benefits for 2 years. Buyers who opt for 20 year contracts may be asked to pay higher premiums compared to buyers who opt for 5 year contracts; however this will depend on other factors as well.
Premium payment options for income protection insurance plans
- Buyers who are interested in purchasing either basic or comprehensive income protection insurance plans are asked if they want to opt for stepped premiums, levelled premiums or in some cases blended premiums.
- Stepped premiums are beneficial for younger buyers since such premium payment plans allow the policy holder to pay lower premium payments at first. However; levelled premiums are beneficial for older buyers since such premium payment plans allow the policy holder to pay a fixed amount towards premiums every year. It should be noted that paying the premiums for the selected plan in advance, once a year either online or via the phone can result in lower premiums.
Important income protection insurance facts tokeep in mind
- Opting for discounts, deals, promotional offers, online offers or special offers offered by insurance agents can help you save a few dollars on insurance every month. Quitting smoking, exercising regularly, visiting a doctor immediately for health problems, taking care of your health and promptly disclosing health related information to the insurer will have a positive effect on your policy.
- Policy holders are often urged to take the best policy they can afford since good income covers can ensure your financial safety in the future. This being said, buyer should note that failure to pay premiums will result in a lapsed policy; hence it is important to keep money aside for premiums in advance or pay premiums once a year in advance to prevent such problems.
- Not disclosing important information such as genetic health problems, pre-existing health problems or your smoking status to the insurer will lead to either a rejected application or a lapsed policy.