One of the most critical parts of an insurance program is Income Protection. You can't afford to lose your income, as a result of an illness or accident. There are some key features of income protection which need consideration. These are Benefit period, Waiting period, Agreed Value or Indemnity and Extended or Basic.

Benefit Period This term refers to how long you will be paid if you are on claim. The standard benefit periods offered are: - 1 year - 2 years - 5 years - to age 55, 60 or age 65

There are a number of reasons why there are different periods: - One major factor is your occupation. High risk occupations where this is a greater chance of claiming such as heavy manual work are usually restricted to shorter benefit periods. - Retirement age. This is why there are plans which cease at age 55, 60 and 65 - so that you can mirror your intended retirement age. - The other main reason is to give people choice and flexibility with price, as the shorter policies are generally cheaper.

Which benefit period is the best?

Generally, the longer the better. The longest you can afford and the longest you able to get based on your occupation. If you were to have a long term illness, a guaranteed income until you were 65 and had reached retirement age would provide you and your family with financial protection.

Waiting Period

This term refers to how long you have to wait before being paid a claim. The standard waiting periods offered are: - 14 days - 30 days - 60 days - 90 days - 1 or 2 years

There are a number of reasons why there are different waiting periods: - Employees usually have sick leave accrued, so long term employees can take a longer waiting period, as they know their incomes will continue due to their sick leave - Self employed people on the other hand who have no sick leave, need to make sure that they are covered with the shortest waiting period they can afford, so that their cash flow continues - A 2 year waiting period is very common where a person has a 'total but temporary benefit' under their superannuation plan - so they tailor their personal income protection policy to start at the time that the income under the total but temporary benefit stops. The other main reason is to give people choice and flexibility with price, as the shorter waiting periods are generally more expensive.

Which waiting period is the best?

Generally speaking, the shorter the better.

Agreed Value or Indemnity?

These terms refer to how much you will be paid while on claim.

Agreed Value An agreed value policy is one where the amount payable while on claim is agreed at the start of the contract. This is validated by providing the insurance company with proof of your financial earnings at the time of application. Proof of income is generally provided in the form of last 2 current pay slips if you are an employee or last 2 years annual tax returns. For self employed people not only do you need to provide personal income tax returns, but in some cases the insurance company may also want tax returns from your business as well. Once you have proven your income, you have peace of mind that if you have to claim, you know what the payment will be - regardless of what you are earning at the time of claim.

Indemnity An indemnity policy is where you provide specific income details at the time of claim. So while you gave an indicative income at the time of application - you didn't have to prove it. So at claim time, the insurance company will ask for proof of your income prior to claim, and if it is lower than what you had applied for, you will only be paid the lesser amount. Indemnity policies are cheaper, and depending upon your occupation, maybe the only style of policy available to you. They are also the only style offered to people who are in new jobs or who have recently become self employed. This type of policy will provide you with cost savings if you are a long term employee who has a stable income, as you know that at any point in time you will be able to prove your income.

Which is the best?

Generally, an agreed value policy will give you peace of mind. However, if you are an employee whose income does not fluctuate, then an indemnity policy can save you money.

Extended or Basic?

These terms refer to how many ancillary benefits you will be eligible for while on claim.

Extended.
An extended policy includes all benefits available. It is generally the top of the range product which has every 'bell and whistle'. As well as paying you an income while you are on claim you may be able to access to additional benefits such as home nursing care allowance, travel allowance for you and family members if you require treatment in another city etc.

Basic A basic policy gives you protection only. It is often referred to as the 'no frills' product. Basic policies are cheaper, and depending upon your occupation, maybe the only style of policy available to you.

Which is the best?

It depends what you are looking for. If price is an issue, consider basic however if you believe that the ancillary benefits may come in handy, go for the extended policy.

Income Protection should be an essential component of your financial strategy.