If you have an income protection insurance plan already - or are thinking about buying one, then you need to be aware that these policies require regular maintenance and careful scrutiny to ensure that they adequately meet your needs.
Unfortunately, many people purchase income protection insurance policies only to find out about their shortcomings at claim time.
Whilst a regular review both of the level of income protection cover that you own and the price you are paying for it are both important, there are some other more critical issues that need to be addressed to ensure that the piece of mind that your income protection insurance policy brings you is not merely a false sense of security.
This does not suggest that your insurance agent or broker isn't looking out for your interests but, if you are unfortunate enough to have a claim on your income insurance policy, it is you that has to live with the consequences of the decisions you make. Possibly for the rest of your life!
Here's a quick list of things that you should be checking.
Insuring your most valuable asset
While many people would consider their home or their car to be their most valuable asset, it's your ability to earn an income that is most important in shaping your financial future. Statistically, two thirds of working Australians will suffer an injury or illness that will sideline them for 90 days or more. The majority of these people would not be able to pay their mortgage or meet car finance and other loan commitments without adequate income insurance.
a.) What do I have to do to qualify for a claim?
Seems like a simple enough question ... you have to be disabled ... but there is a substantial difference from one policy to the next as to what constitutes being disabled. Consequently, there are many, many circumstances where some policies will deem you disabled and others will not. Some have "income- based" definitions, others use "duties- based" definitions. Some have "own- occupation" disability definitions, others define disability as an incapacity to perform "own or any other" occupation.
It is therefore of utmost importance that you understand exactly how your policy defines the term "disabled" and whether it's the most appropriate in your financial and occupational circumstances.
b.) Does the policy provide adequately for longer term disabilities?
Some policies pay lifetime benefits and others cut out after one or two years.
Some policies index benefits to inflation in the event of a claim whilst others do not, resulting in the erosion of the buying- power of those benefits over time.
c.) How is the monthly benefit calculated?
It may be that the amount you insure is an "agreed value" but, in many cases, the amount you may receive when you claim may be limited by your earnings leading up to your claim.
d.) How long will I have to wait before I receive my first claim payment.
You may have a policy excess of 7, 14 or 30 days. Your policy should also specify the frequency of payments, e.g. weekly in arrears, monthly in arrears, etc.
For example, if a policy has a 30 day excess and pays monthly in arrears, you will need to wait at least 2 months for your first claim payment.
e.) How will the policy deal with partial disability?
Some policies require you to satisfy their definition of total disablement before being eligible for partial disability benefits - meaning that benefits during a recovery period may be forthcoming whilst no benefits would be payable for degenerative disorders such as disc disease and many illnesses.
f.) What if my circumstances change?
Where available, the policy of choice is one that is guaranteed renewable and non-cancelable by the insurer ... irrespective of any changes to your health, occupation, future claims or other factors.
g. Can the insurer cancel my policy?
If you are ever unfortunate enough to have an income insurance claim, it can become extremely difficult to find another policy, even many years after a full recovery. So you should demand a policy with continuity for the rest of your working life.
In closing, it should by now be apparent that ensuring you have the best income protection insurance for your money is not a hit-and-miss affair. The cost of getting it wrong can be devastating financially.
This check list is in no way comprehensive and, before entering into an insurance contract of any kind you should seek professional financial advice.
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