Some features of Income Protection will affect your benefits or premium significantly. Make sure you understand them.
Agreed Value Policy vs Indemnity Policy
There are two types of income protection policy, Agreed Value policy and Indemnity policy. The difference is:
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Agreed Value policy: With an agreed-value policy, your monthly income insured payable will be the amount agreed on at the time of your application. The advantage is that you know what you will receive in the event of disability, regardless of changes in your income in the future, which means the monthly income is guaranteed.
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Indemnity policy: With an indemnity policy, your monthly income insured payable will be the lesser of the monthly income insured on policy schedule and 75% of your pre-claim earning. If your income has reduced since you applied for cover, your claim will be paid on the reduced amount.
Waiting Period
Waiting period is the period of time between the date you cease work due to illness or an injury and the date the benefits become payable.
For example, with a 30 day waiting period you would begin receiving payments after 30 days when you cease to work.
The shorter the waiting period the higher the premium.
Benefit Period
Benefit period is the maximum period of time your income will be payable while you are unable to work.
For example, with a benefit period to age 65, if you were unable to work due to illness or injury the policy would continue to pay you to age 65.
As income is so important to family finance, waiting period of to age 65 or 70 is selected by most people.