Income protection insurance are a type of insurance cover that falls under the personal insurance bracket. These covers also fall under the life insurance bracket but are not the same as term life insurance plans. Income insurance protects your future and your family’s future when you suffer loss of income due to health problems such as injury due to an accident or sickness.
What is income protection insurance ? It ensures that families in Australia do not have to worry about money problems when they cannot work temporarily. This type of insurance plan offers a compensation payment to the policy holder and depending on the conditions of the plan, additional benefits may also be provided.
What doesn’t income protection insurance cover?
Income protection insurance do not offer compensation payments to the policy holder if he loses his job due to recession or any other non-medical reasons. This means that, the policy holder can only get basic and other benefits from the insurer if he cannot work for a few weeks, months or years due to medical reasons. Depending on the conditions of the selected cover, there may be certain exclusions or premium loading fees.
Exclusions imply that in a particular scenario, the policy holder cannot get compensation payments. For instance, if a buyer has injured his shoulder a few times while playing sports, then he may have to agree to purchase a policy with exclusion for shoulder injuries when he wants to file claims. Exclusions are meant to keep policies cost effective for the policy holder. Premium loading fees imply that if the policy holder files a claim in some situations then he will have to pay an excess to the insurer at that time. Premium loading fees and exclusions may be offered as an option to buyers with pre-existing health conditions or to policy holders who play rough sports such as rugby.
Why must I wait for A set number of days before filing a claim?
A waiting period is mandatory and majority of the insurers in Australia that offer cheap policies require the policy holder to wait for a few months before filing the first claim. Claims that are filed before the waiting period is over will be rejected unless a day one claim benefit is purchased. While the standard number of days, policy holders are asked to wait is 30-90 days, insurers may give policy holder to adjust the waiting period if they opt for a flexible policy. .
Opting for a longer waiting period tends to lower premiums by a few dollars a month however; doing this also means that you cannot file a claim for a longer period of time. Deciding the right number of days you want to wait before getting the pre-decided benefits is important especially if you have children, an unemployed partner, elderly parents or financial commitments such as loans, debts and mortgages.
What benefits can I expect if I purchase:
Basic income protection plan?
You can expect basic compensation benefits along with one or two other perks if the insurer offers such benefits. The basic compensation benefits comprises of you receiving monthly compensation payments that can total up to a maximum of 75% of your pre-tax annual income. It should be noted that cheap or basic plans tend to offer low compensation benefits.
You can also expect to get an indemnity contract that offers a variable amount of compensation payments to policy holders with variable incomes. This implies that, indemnity contracts are suitable for employees who earn a fixed amount every year; however these contracts are not suitable for self-employed individuals who earn a variable amount of income every year.
Certain exclusions or premium loading fees may be applicable as well; hence before accepting the contract and agreeing to purchase it, make sure that you read the product disclosure statement. Cheaper contracts tend to have longer waiting periods along with shorter benefit periods as well.
Comprehensive income protection plan?
If you are ready to spend a few dollars extra on premiums every month then you can expect to receive maximum compensation payments every month from the insurer. You may also be eligible to receive a death benefit, transplant surgery benefit, accommodation benefit, rehabilitation expenses benefit along with a few other perks when you file a compensation claim.
A day one claim benefit may be offered for no cost or a nominal fee as well. This benefit allows you to file a claim before the waiting period is over, however the compensation amount will be given shortly after the waiting period is over.
In most cases, you will be given the choice to decide if you want an indemnity or agreed value contract. You can also expect to be offered a contract with a shorter waiting period and a reasonable benefit period that can range from 2 years – 5 years.
What is the term of the policy an how is this different from the benefit period?
The term of the policy is the total number of years you are financially protected and eligible to file a compensation claim. The benefit period on the other hand is the total number of years you can receive the compensation benefits once you file a claim.
The term of the policy can be 5 years, 10 years, 20 years or more; however the benefit period of the policy is usually 2- 5 years. The term and benefit period of income protection insurance policies can be adjusted unless stated otherwise; however altering the policy in any way may result in additional charges. Due to this reason; before purchasing a policy, ensure that you have asked for adequate number of quotes from either insurers or insurance comparison websites.
In addition, before purchasing a policy ensure that all your questions regarding the policy have been answered either by the insurance agent, a financial advisor or an insurance advisor who works independently or with an insurance firm.