Income Protection Insurance
Income protection insurance can provide a regular monthly benefit of up to 70% of your income if you are unable to work for an extended period of time due to illness or injury and if you've served your chosen waiting period (no benefit is paid for being unable to work during the waiting period). How long you receive the benefits for is nominated when you take out your policy.
An optional feature that can be important when considering income protection insurance. In the event of a claim the amount you receive each year is increased in line with inflation. Without this feature during a long term claim your monthly benefit payment would not increase and may affect your standard of living.
Increasing Cover with Inflation
All life insurance policies have a feature that automatically increases the benefit amount and premiums with inflation. (See also inflation protection).
Indemnity Style Policy
An Indemnity Style Policy is an income protection policy where you are insured based on what you earn at the time of application. If you need to make a claim, you will need to verify your income. If it has reduced since you applied for your insurance, your claim may be paid out based on the reduced amount. Also note that typically the benefit paid is the lesser of the amount you select (the Benefit amount) and a percentage of your income at the time of claim.
As soon as an application for insurance is lodged, interim cover will be put in place. With Life Insurance this will mean accidental death cover is in place while the application is underwritten.
Level Premiums have the cost increases associated with getting older spread out over several years. This means the cost starts out higher than stepped premiums, but depending on how long you hold your policy, the cost may be lower at some point in the future.
Cost can also increase overtime. While this is not an exhaustive list, here are some examples of why your policy might cost more over time:
• Premium rates are variable; they can increase due to market conditions such as higher than expected claims.
• If a premium discount ends after a set period.
• If the amount you are insured for automatically increases each year in line with inflation, your premium naturally goes up each year to reflect the cost of the extra cover and age at time of increase.
• If your policy starts with level premiums and switches to stepped premiums at a specified time or vice versa.
Life insurance is also a product offered by life insurers, also called term life insurance or death cover, that provides a lump sum payment to your or your beneficiary/s if you’re diagnosed with a terminal illness or pass away. This payment can help you and your loved ones in many ways, like, for example covering any medical and funeral costs, and settle any debts after you’re gone.
Life insurance is an umbrella term including all the types of life insurance, such as term life insurance, income protection, total and permanent disability (TPD) and critical illness cover.