How Get More Value Out of Your Income Protection Insurance
For most of us, whether we’re paying a mortgage or rent, servicing debt or supporting a family, our financial stability depends on our ability to go to work.
Unfortunately, things don’t always go according to plan. If illness or an accident interrupts your ability to work, income protection insurance can help tide you over until you can return.
But choosing the best income protection insurance policy is not always an easy job.
When it comes to income protection, there’s no generic solution. The right insurance policy for you will depend on your needs and budget. Moreover, it should be from a reputable insurer, guaranteeing that you receive a positive outcome should you need to claim on your policy.
Before buying an insurance policy, there are some key considerations you should be aware of. Here is some advice that can help you get more value out of your income protection insurance.
Amount Insured
An income protection insurance policy is designed to insure one of your most essential assets – your income. It ensures you keep receiving financial support even if you are unable to work for a certain period due to illness or injury.
However, the insured amount can differ considerably. Usually you will receive 75% of your income as a monthly benefit for an agreed period, or until you can return to work – whichever is sooner.
If you are in Australia and looking for a policy that can provide better value, look no further than Aspect Income Protection. It gives coverage of 85% of your income and pays up to $42,000 per week, if your income justifies it, for the nominated waiting period.
Choosing A Shorter Benefit Period
The benefit period determines how long you will continue to receive monthly payments.
There are a range of benefit period options (usually 12, 24 or 60 months or a benefit paid until you reach the age of 60 or 65. But always remember the longer the benefit period, the more expensive the premiums.
In most cases, people return to work well within one year, and 3 months is one of the most common lengths of time to be off work. So to choose a shorter benefit period (2 years) will cover the majority of circumstances and be more cost-effective, rather than 5 years or a ‘To Age 65’ benefit period.
If you would prefer to err on the side of caution, you should also consider a Total Permanent Disability (TPD) policy which will provide you financial security if you become permanently disabled and can never work again.
It’s a widely held view that if you’re unable to return to work after 18-24 months, you’re likely to never return. Which is when the TPD benefit steps in to take over from your Income Protection benefit.
There are some insurers like Aspect that offer additional cover but still all under the one policy, including Accidental Death Cover, Total Permanent Disability (TPD) Cover, and Trauma Cover.
Shorter Waiting Period
When deciding on a waiting period always look for an insurance policy that has a shorter waiting period with a reasonable premium.
With any income protection insurance, you will need to wait for a certain amount of time before you start receiving a monthly benefit. Usually the waiting period is one of 30, 60 or 90 days. Aspect is one of a small number of insurers who offer a 14-day waiting period. You should choose a waiting period that is be best for your circumstances – how much sick leave to you have (if any), do you have sufficient savings to last for 2 or 3 months with no income?. The shorter your waiting period, the quicker you will start receiving the benefit but there’s a higher premium attached. If you can afford to have a longer amount of time with no income or you have a large amount of accrued sick leave, you should choose a longer waiting period to reduce your costs.
Understand The Quality Of The Policy
It is essential to understand the conditions and depth of cover of your income protection insurance. For example, some Insurance policy offers a partial disability benefit as an extra option.
If you have been off work due to injury or illness and you can later return to work but in a reduced capacity (e.g. part-time), you could still receive a reduced monthly benefit from your policy, until your benefit period ends or until you return to work completely, whichever happens first. This will depend on whether your employer will agree to you returning in a reduced role and therefore receiving a reduced salary. If they do agree, your income protection policy can cover the difference.
Get a free assesment of the costs that you would require to insure your family’s income with Aspect.
Mike Wallis
Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.
