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Income Protection Waiting Periods
Sickness and Accident Insurance
Income Protection
Income protection, also known as income insurance, is a policy where the insurer agrees to pay a specified amount of money if you become ill or injured and unable to work. Income protection insurance allows you to cover your expenses and maintain your financial obligations as you concentrate on getting better.
How income protection insurance works
Income protection insurance essentially involves the transferring of risk from you to the insurer. In the event of a serious illness or injury, the insurer would pay a proportion of your salary or wage (75%) until you have recovered sufficiently to work again, or up until the maximum benefit period as stated in the policy which is normally 2 year, 5 year or up to age 65. The policy essentially replaces your 75% of your income and enables you to meet any ongoing financial commitments while you are unable to work.
When applying for an income protection insurance policy the insurer will complete an assessment of the information you provide and will decide whether to accept the risk and on what terms. Be sure to read the product disclosure statement very carefully and ensure that you get clarification on any areas you don't understand.
Benefits of income protection insurance
This is normally based on your annual income at the time the illness or injury occurred. Generally, income protection insurance pays up to 75% of this amount as monthly payments. This type of insurance often provides additional cover which is not covered by a trauma insurance or TPD(total permanent disablement) insurance policy. The annual premium for Income protection insurance is tax deductible.
Establishing the income protection you want
Once you have decided to go ahead, you need to decide how comprehensive you want the cover to be. The more comprehensive the cover the higher the premiums will be. These are some of the key elements in a policy and some factors that will determine how expensive or inexpensive your policy is:
- What "waiting period" do you require, in other words how long can you be off work before you require the income to commence. Generally the waiting periods are range from 14, 30, 60, 90, 180, 360, up to 720 days. The shorter the waiting period the more expensive the policy.
- How long do you require the maximum monthly benefit to be? This is the maximum length of time following the waiting period that the policy will pay the benefit for, generally these are 2 year, 5 year and to age 65. However if you are able to return to work because you have recovered from your sickness or injury and are able to return to work then the monthly benefit will cease at time.
- Another key factor which insurance companies take into consideration when looking at income protection insurance premiums to charge to their clients is the proposed clients occupation, where the client is involved in a hazardous occupation or where there are more risk involved they will pay a higher premium compared to a professional office employee.
- Are you a smoker? If you are or if you have smoked within the last 12 months you will pay more in premiums compared to a non-smoker. However should you already have a policy and premium based on smokers rates and you have not smoked in the last 12 months you may be able to have your premiums reduced back onto non-smokers rates.
Completing the application form for your income protection policy
Ensure you answer all the questions fully and completely as possible. Ask the insurance adviser to clarify any parts of the policy application forms or product disclosure statement you don’t understand.
There are a large number of insurance companies that offer this cover, and many different types of income protection insurance policies. Each have different levels of cover, terms and conditions. It is best to get advice from a insurance adviser to make sure the policy you purchase suits your personal situation.
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December 2009
