If comparing income protection insurance options was simply a matter of comparing prices of the various policies on offer, it would be a relatively easy task… but with the large number of policy variations in the market – all designed with different outcomes in mind, the job can be quite complex for the uninitiated. In this article I have identified what I think are the main things that you might consider in conjunction with price to ensure that you are getting true value for your insurance dollar.
1. How is ‘disablement’ defined under the policy?
The definition of disability is the door that you will need to unlock in order to get paid under an income protection insurance policy.
Some policies express disablement as being incapacitated to an extent where you are unable to do certain duties of your occupation, other policies base their definition on your capacity to continue to earn income. A few policies offer a combination of both.
There are also many variations within these two main definitions which could effect your ability to make a claim.
Remember, your insurance policy is a legal contract between you and your insurer – so the way that things are defined in that document will shape the way your policy works at claim time.
2. How long will my income policy continue to pay me if I have a major claim?
Some policies will continue to pay for a lifetime in the event of a permanent disability and others have benefits that cease after just 12 months.
There are also many policies on the market that have a different maximum claim period depending whether your income protection claim is as result of an accident as opposed to illness.
If you have (or are considering) a policy with a different payout for injury vs illness then you will also need to ask…
(a) how both injury and illness are defined in the policy and…
(b) whether a claim could be jeopardised if complications that arise indirectly from an injury are classified as an illness.
3. How long after I make a disability insurance claim do I have to wait before I can get paid?
Policies can have an excess of 7, 14, 30 days or even longer before you become entitled to claim payments. The longer that you can afford to manage financially before needing a replacement income, the cheaper the price.
You should also find out whether the policy pays weekly, fortnightly, monthly in arrears, etc.
If an income protection policy has a 30 day excess and pays monthly in arrears then you could be waiting 2 months or more before you start to see the money flow.
4. How much will my income protection policy actually pay me each month if I have a claim?
More specifically, you should find out whether the amount insured is an agreed value amount or whether your claim entitlement calculated based on actual pre-disability earnings that could vary depending on when you claim.
It’s possible, depending on your policy, that you may be required to prove your income at claim time whilst other policies accept proof of income at the time the insurance is purchased.
5. How does my income insurance cover me if I am partially disabled?
You will need to be aware of…
a) whether the policy includes benefits for disablement that limits your earning capacity but does not prevent you from working altogether and
b) whether partial disablement benefits are restricted to allow payment only after you have had a period of total disablement. Remember, there are many illnesses in particular that are degenerative in their nature and could impact on your ability to survive financially.
6. How do my income protection insurance rates change over time?
Rates can be fixed for the term of the policy or stepped, i.e. they increase over time. They may also increase further with CPI.
Most importantly, you will want to know whether there is any rate penalty that you may incur as a result of having a claim.
7. What assistance does the income policy provide assistance with rehabilitation?
After a long term disability in particular, there may be a point in time when you feel that you want to get back into the workforce in order to improve your position.
It’s important that you know whether the company will assist you in this way or whether they will hinder you by offsetting any future income that you may earn against future benefit payments.