So you have had your income protection insurance policy since you started work. Each year you get the statement and have a quick look at the premium to make sure it’s still reasonable and within budget. However, there are other things you need to know about your income protection insurance. Here are the top 4
This is the monthly amount you would get if you were injured or sick and unable to work. This is typically 75% of your income. If you took out your policy straight out of university, chances are you are earning a lot more now and is actually less than 75% of your current salary. Most likely your financial commitments have gone up too!
Also, have a check if you get an additional amount for you to continue contributing into your super.
Indemnity vs Agreed Value
An indemnity value cover means that what you actually will get at a time of claim will be based on your pre-disability earnings. Depending on the insurance policy, this could be 75% of your pre-disability earnings in the preceding 12 months. Some insurance factor in the last three years’ income and pay you the 75% income based on the year you had the most income. Some would have different ways of calculating.
Having an agreed value policy means, that your benefit amount is agreed by the insurer at the time of application. For example, if later on you decide to work part-time and happen to go on claim, then you’ll get the agreed value. Agreed value policies give you more certainty on how much you would get if you go on claim, however, they are also incur a higher premium.
This specifies how long you need to be unable to work due to injury or illness before you can get your benefit. Usually, 14 day, 30 day, 90 day waiting periods available. Some policies even offer a 2 year waiting period! Keep in mind that many policies will pay in arears. Meaning for example, if you have a 30 day waiting period, you won’t get any payment till the end of the second month. Make sure you have enough savings, or sick leave accrued to be able to pay your bills during the waiting period.
This refers to the maximum length of time your policy will pay. Typically there would be 2 year, 5 year or till age 65 benefit period. For example, a two year benefit period will only pay your benefit for a maximum of 2 years. Of course the longer the benefit period the higher the premium you have to pay. Speak to your risk adviser who are risk specialists to help determine the most suitable benefit period.
There are other features in your policy. Read the Product Disclosure Statement for further details.
It is important to have your insurance policy continually reviewed for all types of insurance. This goes without saying for your income protection. This is just sound risk management. Circumstances change all the time. So the income protection policy you took out straight out of university, may not be appropriate 8 years on when you now have been promoted numerous times and have a mortgage and young family.
If you are too busy to review what you have or just need help in understanding the complexities, then speak to your financial adviser or a risk specialist. They can help review what insurance you have and help you understand different types of insurance. As part of their financial services, they can provide you with a plan to ensure you are adequately protected.
AFP® ,B.Bus(Acc), B.Comp, DFP, ADFP
Accredited Aged Care ProfessionalTM
Authorised Representative No. 1238040
Disclaimer: Information on this site may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.
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