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 indemity value income proteciton policy. There are quite large differences between these two options and depending upon your employment circumstances this is an important decision.
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
Agreed Value – 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 to Decide?
Many people are self employed and this is where agreed value income protection can be very important, mainly to provide known protection regardless of fluctuations in your annual income. Furthermore insurance companies will all self employed people to 'add back' many expenses that are in essence personal (eg car lease).
On the other hand people that earn a regular salary as an employee (and have no intention of altering) can easily prove their income through producing a payslip. For these people indeminty style income protection can provide a significant premium saving.