Agreed Value or Indemnity Income Protection
Once you have decided to establish income protection insurance you will have to decide on the options that are available. One of the first decisions is whether to take out an agreed value or an indemnity value income protection policy. There are significant differences between these two options and the right decision will depend on your employment circumstances.
Indemnity Value Income Protection
With an indemnity policy, you are insured for what you say you earn, but if you make a claim you have to verify your income. If your income has reduced since you applied for cover, your claim will be paid on the reduced amount.
Agreed Value Income Protection
With an agreed value policy, you prove your income at the time of applying and insure to receive a set amount. The advantage is that you know what you will receive, regardless of changes in your income. The disadvantage is that these policies’ premiums are approximately 20 per cent higher than for indemnity contracts.
How Should You Decide?
For freelancers and small business owners, agreed value income protection can be very important, particulary for providing known protection regardless of fluctuations in your annual income.
On the other hand, those who earn a regular salary as an employee, and have no intention of altering it, can easily prove their income through producing a payslip. For these people, indemnity style income protection can provide a significant premium saving.