Your ability to earn an income is your biggest asset so it makes sense to ensure that it is protected. Income protection insurance provides this cover.
The basics of this insurance is to provide replacement income for the policyholder should they be unable to work due to an injury or illness.
Features of the Insurance
Income protection policies have the following features;
- A benefit up to a maximum of 75% of your salary (if it is indemnity cover), or 60% if it is agreed value. The difference between them is; indemnity cover is TAXED but you can claim GST on it, and Agreed Value has the tax already paid, and you cant claim the GST.
- A benefit period – this is the period of time that you will receive a benefit payment in the event of a claim, usually 2 years, 5 years or to age 65;
- A waiting period – this is the period of time that you have nominated to wait after an accident, injury or illness before you can receive a benefit payment. Usually from 14 days, 30 days, or 90 days, (but there are other variations).
- Claim benefits can be indexed to increase in line with inflation
- Your occupation will affect your premiums, some higher risk occupations are not eligible for income protection cover, or they have specific wait periods or claim benefit periods. Eg. Digger drivers may have a 13 week wait and a 2 year claim benefit period.
- Insurance premiums can be stepped or level. Stepped means that each year the price increases with your age. Level means that it stays the same price* for the life of the cover.
- Benefit amounts can be either for an agreed value or indemnity value.
*if the cover is indexed it will increase with the sum assured but at a much slower rate.
