Agreed value or indemnity value income protection insurance?
So you’ve decided to protect your most important asset – your income! Though once you start researching you find there are all these words that you don’t understand, yet you have to make a choice over. One of these is choosing between an indemnity value, or an agreed value income protection insurance policy. While they are both income protection policies, it’s the application and claim’s process that differ.
Indemnity value income protection insurance policy
With an Indemnity Value Policy, you will need financial documents to prove your income in the event of a claim. This also means you won’t need to prove your income to apply for income protection insurance. The value of your income protection monthly payment is restricted to 75% of your gross income (from personal exertion) or the sum insured, whichever is the lesser.
Agreed value income protection insurance policy
With an Agreed Value Policy, you will not need to produce financial evidence in the event of a claim. However you will need to prove your income at the application stage. This means that regardless of if your income reduces, you will be paid the agreed monthly benefit. On the down side, the premiums from this type of income protection insurance policy tend to be approximately 20% higher than Indemnity Value Policies.
Which is income protection insurance policy is better?
It’s not really a matter of which is better, but what suits your personal situation.
Agreed Value Income Protection Policies may be particularly beneficial for employed individuals whose income is likely to fluctuate, such as self-employed persons. It may also be beneficial for women who are likely to have children in the future and plan to take maternity and/or unpaid leave, possibly resulting in a lower income once they rejoin the workforce.
On the other hand Indemnity Value Income Protection Policies are generally cheaper than the Agreed Value policies and any drop in income will allow the insurance company to reduce the benefits you will receive at claim time.
How do you make your decision on which type of income protection insurance?
It’s always best to speak to an xLife adviser who can help you understand the policy, its definitions and how they apply to your personal situation.
Contact xLife today or request free income protection quotes.
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save up to 20% on your first year’s income protection premium.
September 2009
