Income Protection Explained

Income Protection Explained

Income Protection Cover Choices

• The waiting period is how long you must be unable to work before the insurance begins to pay you. It can be tailored to cover you once any accumulated sick and long service leave are used. Waiting period variables are 14, 30, 60 and 90 days, 6, 12 and 24 months
• The benefit period is how long the policy will pay you if you are unable to work, again this can be tailored to your financial or other goals. The claim benefit period can vary from 2 years to age 65. The longer the benefit period, the higher the premium
• Amount of cover is usually restricted to 75% of your gross salary
• Claims escalation ensures that the monthly benefit you are paid is increased in line with inflation.
• HIV or Aids cover is automatically included is some policies, but others offer the ability to exclude it and achieve a lower premium payable.
• Indemnity v Agreed Value policies give you the choice between having your benefit calculated as a percentage of the income earn the pre-claim period, or having a guaranteed minimum sum insured regardless of whether your income falls after you take out cover.

Premium Costs

It is important to remember that the cost of income protection is fully tax deductible - the after tax cost of the cover can therefore be significantly less than the cost of the premium. The cost varies significantly based upon the waiting period, benefit period, amount of income insured and the insured occupation. Contact Insurance House for a personal quote.

Effect of Occupation on Premium Levels

One of the major factors influencing the size of premium is occupation. White collar workers and professionals will generally be charged lower premiums than blue collar workers due to the generally lower risk of injury. It is also important to note that a lower percentage of income may apply above certain occupation income limits e.g. $250,000 p.a.

This is also a major point of differentiation between the companies with some choosing to target particular occupation groups with lower premiums, e.g. nurses or doctors. There are some occupations which are not covered by any insurance companies or by only a few, e.g. actor, model, pilot, bicycle courier and armed forces.

Importance of ‘Total Disability’ Definition

Income Protection policies are very complex products and policy definitions can differ greatly between companies. The most important definition to compare between policies is the definition of ‘total disability.’ Like TPD insurance, the type of duties or employment you must not be able to perform will govern whether you are considered ‘totally disabled’ or not. Some policies define employment to be any employment, including lower paid unskilled work. It is important therefore that your policy will cover you if you cannot perform the duties of your regular occupation.