Choose income protection insurance that works for you

Given all the uncertainties of life, having income protection insurance is a safety net that can financially support you if you’re unable to work due to sickness or injury. But choosing the right policy can become overwhelming once you realise how many options are out there. So, let’s break down some potentially  important things to consider before making a decision.

Choose income protection insurance that works for you

When you start to look at different income protection insurance options, you’ll want to make sure you can customise the policy to suit your own circumstances. Your job, whether you are an employee or self-employed, your family type, lifestyle, and financial obligations  can all play a part in determining the cover you choose. 

Key potential considerations  for choosing a policy

Now that you understand the basics of income protection insurance, it’s time to start doing your research. Here are some potentially important factors to consider before making a decision:     

Policy type

Income protection insurance is generally broken down into two main  categories when it comes to levels of cover:

• Indemnity value: This benefit amount is based on your income at the time of the claim, which can fluctuate. If your income has decreased since you first took out the policy, then your payout will be based on your current income. If your income varies from week to week or month to month, then your benefit will be based on your annual average earnings over a period of time appropriate for your occupation.  
• Agreed value: This means the monthly benefit amount agreed upon at the time you take out the policy, based on your income at that time. It gives you more certainty but can also mean higher premiums. According to Money Smart, insurers can no longer offer agreed value policies to new customers as of 31 March 2020. However, if you took out an agreed value policy before this date, you can continue to hold it.

Premiums

The amount you pay in premiums will depend on factors such as  your age, job type, current health, as well as the options mentioned above (e.g. level of cover, waiting period, benefit period). It might be tempting to choose a lower premium right now, but just make sure the policy is still giving you a  suitable amount of cover that allows you to cope financially, while you recover.

Income protection insurance policies can generally offer you either level premiums or stepped premiums. Level premiums may cost more at the start of your policy but changes to cost aren’t based on your age so increases happen slower over time. Stepped premiums start lower and are recalculated when your policy renews. The premiums will gradually increase over time, as you age.

What is covered?

Most income protection policies cover up to 70% of your monthly pre-tax income if you can’t work because of a  sickness or injury. However, every insurer is different, so their specific details might differ – be sure to read the relevant product disclosure statement for your policy. Some policies might also have extra optional benefits to choose from, like:

• Rehabilitation benefits: Help with medical and rehab costs to help you return to work.
• Partial disability benefits: If you can only return to work part-time or in a reduced capacity.
• Recurrent disability benefit: If you have to make another claim within a certain timeframe, for example, within six months of your last claim, because your sickness or injury has reoccurred in that time, it may be counted as a continuation of the first claim. 

Keep reading: Is income protection insurance can be tax deductible?

Waiting periods

This is the amount of time you need to wait after becoming unable to work before your benefits begin. In most cases, waiting periods can range from two weeks to 90 days  or maybe even more.

Benefit periods

The benefit period is the length of time you’ll receive payments (i.e. the monthly benefit amount) if you’re unable to work. You can usually choose between specific periods of time when you apply for cover, which could be: 

• 6 months
• 1 year
• 2 years
• 5 years

Benefit periods may also be up to a specific age (such as 65). 

Ready to find the right financial safety net for you and your loved ones, so you can have protection in place if you’re unable to work due to sickness or injury? Explore your options with Guardian Income Protection Insurance to see if it may be  suitable for you and your family, and request a quote online today.