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Income Protection Insurance
Income Protection Insurance (also known as Salary Continuance) is designed to provide a regular income in the event that you are unable to work due to accident or illness. Generally, Income Protection Insurance provides a regular income during a period of disablement for up to a pre-determined and agreed benefit period.
The benefit amount payable is usually up to 75% of your stated Annual Salary or Taxable Income.
Waiting periods: The normal range is from 30, 60, 90, 180 or 365 days.
A waiting period is the time that you effectively self-insure. For example, let's say you have Income Protection on a 30 day waiting period and you are walking home and you are hit by a Bicycle Rider who did not see you. You go to hospital and you will be out of action for 90 day or 3 month in rehabilitation. You would complete you claim form and after the 30 days waiting period you would be then paid for the duration of time you are off work (the 60 days) or until such time as you return full back to work. Note that different providers have different features and benefits that may also be applicable on your policy.
Benefit periods: The normal range is from 2 years, 5 years or with benefits payable to age 65.
A benefit period is the length of time that an Insurance company will insure you for. Essential it is opposite to a waiting period, If we use the same example as above in the Bicycle accident, let's say you have a 30 day waiting period with benefits payable until age 65. If when you are in hospital the prognosis is not favourable and the Doctors say that you are unable to return back to the work force , you will then be paid out the monthly benefit in your income protection policy until you reach age 65.
Note that in some cases some Insurance companies may pay you out the full amount of your benefit in the form of a lump sum (les say you are 30 years of age, and your benefit is $2,000 p/mth - you entitlement may be something like
$2,000 p/mth x 12 x 30 years or $720,000. Note this is only an illustration only and does not factor in CPI.
Agreed Value Policy: Agreed value policies mean that you prove your income at application stage, In order to obtain this type of policy you will general be required to have proof of your current earnings via taxation returns for the past 2- 3 years, to substantiate your income. This type of policy is generally more expensive than that of an indemnity vale buy about 20%, however it gives you peace of mind knowing that you have proved your income and can avoid delays at claim time.
Indemnity Value Policy: Indemnity value policies mean that you do not need to prove you're at application stage, however you will need to prove your income at claim time with an average of income generally over the past 2 years, you should review your plan regularly to ensure that it meets your needs and that you do not pay more cover than what you might be entitled to. This type of policy is a cheaper alternative to an Agreed Value policy
Income Protection really is amazing, it covers you for up to 24 hours per day, 365 days per year, and it can even cover you when and if you go travelling overseas on holidays. (Subject to terms and conditions as stated in the PDS).
What is the cost for Income Protection?
Income Protection premiums vary greatly across the market place depending on the level of protection you are after. Prices vary depending on age and other factors, but as a general rule, income protection can cost around one week's salary per year (approximately 2% of your annual salary) and premiums are generally tax deductible.
Premiums are set depending on the following factors:
Age - The cost of obtaining cover generally increases over time
Gender - Male / Female
Health and pre-existing conditions - Any previous medical conditions.
Whether or not you smoke - If you are a smoker, 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 to non-smokers rates.
Occupation - If you are involved in a hazardous occupation or where there are more risks involved, you will pay a higher premium compared to a professional office worker.
Waiting period - i.e. how long can you be off work before you require the income to commence.
Benefit Period - This is the maximum length of time following the waiting period that the policy will pay the benefit for. These can either be for a set period (2 year, 5 year) or until a certain age (to age 65). If you are able to return to work because you have recovered from your sickness or injury then the monthly benefit will cease at that time.
Additional policy features - Whether you would like a ‘comprehensive' or ‘basic' policy or any additional features will also affect the cost of cover.
Agreed Value Policy - means that your income at time of application is guaranteed to be payable, even if you have a claim and your income at that stage is less, you will be paid the guaranteed amount.
Indemnity Value Policy - means that you will need to prove your income at claim time with an average of income generally over the past 2 years, you should review your plan regularly to ensure that it meets your needs and that you do not pay more cover than what you might be entitled to.