Have you found choosing an income protection policy daunting? Did you find the number of options for you to choose from overwhelming? In our latest blog post, we break down the key things you need to know when comparing Income Protection policies.im
Comparing – What you need to know
The monthly Benefit
The first thing you need to choose is your monthly benefit. Generally income protection protects up to 75% of your income, paying a monthly benefit if you go on claim.
You will need to decide what monthly benefit, up to 75% of your salary, you would like.
Waiting Periods and Benefit Periods
Once you have selected your monthly benefit, you will need to consider what waiting and benefit periods you would like. Your choice of waiting and benefit periods will affect your premium.
A waiting period must be selected when you purchase an income protection insurance policy in Australia. It refers to the amount of time you are willing to wait until your benefits will start to be accrued if you are unable to work due to sickness or injury.
Your selected waiting period may vary depending on the amount of funds you have access to when you become sick or injured. They usually range from 14, 30, 60, 90, 180 days or 1 year or 2 years.
Generally the shorter the waiting period is, the more expensive the premium.
Things to consider when choosing your waiting period include affordability, how long can you go without receiving an income from your primary occupation, how much sick, annual and long service leave you have and what other income you and your family have.
A benefit period must also be selected and refers to the length of time you would like your monthly benefit paid to you should you go on claim. A typical benefit period is usually 2 years, 5 years, or up to age 65 or to age 70.
Generally the longer the benefit period is, the more expensive the premium.
Things to consider when choosing your benefit period include affordability and what would you do if you were still unable to work after your benefit period expired?
Once you have chosen your waiting and benefit periods, you will need to select what policy type you want. The type of policy you select will affect your monthly benefit and your premium.
There are three main types of income protection available in Australia:
- Agreed Value is where your benefit is based on income earned before your application. This may be most suitable for people whose income may fluctuate from year to year.
- Indemnity value is where your benefit is based on financial evidence required at claim time. This may be more beneficial for people whose income is stable over a number of years.
- Guaranteed value is only offered by a select number of life insurance companies in Australia. It is a variation of the agreed value income protection policy type where your income is assessed at application time, supported by evidence you must provide such as tax returns. This means that there is no uncertainty at claim time as to the benefit amount, speeding up the claim process.
The next thing you will need to decide is which premium structure to choose. Like all life insurance policies, you have the choice between Level Premiums and Stepped Premiums.
Level Premium: Start off more expensive but do not increase each year due to a change in your age. They may suit someone who is looking for long term protection and long term affordability.
Stepped Premiums: Starting off cheaper than level premiums, they increase each year due to a change in your age. They may suit someone looking for short term protection or short term affordability.
Once you have chosen your monthly benefit, waiting and benefit periods and policy types, you can start comparing what features and benefits each policy offers.
While there are generally a number of core benefits offered across the insurers, each insurer’s policy may offer different or additional built-in benefits that others do not.
For example one insurer may offer the Rehabilitation Benefit as part of its standard or basic policy, whereas others may offer it as part of their Plus or Premium policy.
When the core elements of your policy have been chosen, you can start to look at what additional options are available. Most of the insurers we compare offer a number of options
General options may include:
- Increasing Claims: Increases your monthly benefit when you go on claim by changes in the Consumer Price Index so your policy keeps up to date with inflation.
- Accident Option: Pays 1/30th of your monthly benefit for each day of total disablement during the waiting period, if total disablement is the result of an accident.
- Critical Illness Option: If you are diagnosed with one of the listed critical illness or trauma events, you can receive an additional benefit on top of your monthly benefit.
- Superannuation booster: Increases your monthly benefit to 80-85% with the additional money going towards your superannuation.
Choosing the right policy in Australia
When going through an income protection insurance comparison, it really depends on your personal situation. There is no one size fits all when it comes to policies and it is important to take into consideration the above points when doing your research.
Why is comparing important?
Making sure you choose the right income protection policy that meets your circumstances and is affordable is incredibly important, especially when it comes to claiming.
Taking out a policy that doesn’t cover you for what you need it to or doesn’t offer enough cover to meet your circumstances may make it difficult if you need to make a claim.
More importantly, taking out a policy that is so unaffordable you can’t afford to hold the cover for the long term will make claiming impossible if you no longer hold a policy.
It’s important to find a balance between the two, which is where comparing comes in. We compare the leading life insurers in Australia and offer our clients a detailed and transparent comparison report.
Furthermore, our advisers can discuss all your options with you and provide quotes for a number of scenarios.
Tailor policies to suit your needs
If you are in doubt about the right policy for you, speak to a qualified financial adviser. An adviser can help tailor your insurance needs by comparing income protection insurance Australia wide and recommending a policy which suits your particular situation.