INCOME PROTECTION INSURANCE
Income protection insurance is where the insurer will pay you a specified amount of money if you become disabled and unable to work.
How Income Protection Insurance Works
Income Protection Insurance policies involve the transferring of risk from yourself to the insurer. Instead of you paying for the loss yourself the insurer agrees to compensate you for any losses that arise. When applying for an insurance policy the insurer will complete an assessment on the information you provide and will decide whether to accept the risk (and on what terms). You will then have to decide whether the terms the insurer offers meet your requirements. Be sure to read the product disclosure statement and any terms and condition statements.
Important steps in completing your income protection insurance policy contract
- Understand exactly what the policy does and doesn’t cover before you sign it. Far too many people read it after it has been signed which is often too late.
- “Duty of disclosure” Is whereby you are responsible for answering all questions the insurer asks you as accurately and completely as possible. If you do not answer them completely, you may have misled the insurer about the risk they are accepting. And as a result, the insurer may be entitled to refuse to pay any claims.
- The insurer is required by law to clearly inform you of any restrictions in the insurance policy before you enter into the contract. If they fail to do this the insurer may be penalised.
- The insurer is also responsible to tell you in writing whether or not they are prepared to enter into a new insurance contract with you before your current policy expires. The law stats that your insurance continues with the insurer if, they have not sent you a letter telling you that your policy is expiring and you have not already arranged other insurance cover.
Be sure to keep your policy documents in a safe place so you can easily find them if you ever need to check your cover or make a claim.
Choosing the right income protection insurance quotes
Before you decide to find the right policy, check to see whether you already have disability insurance through any superannuation fund you contribute to. If you have this you need to find out what it does and does not cover including the payment terms of the policy. This type of insurance is provided under a contract between the trustee of the superannuation fund and the insurer, which covers the members of the fund. This type of insurance is generally known as a group policy and can be cheaper than other income protection policy’s you take out yourself.
Establishing the best income protection insurance cover you want
Once you have decided to go ahead, you need to decide how comprehensive you want the cover to be. The more comprehensive the cover the higher the premiums will be.
These are some of the key decisions you will need to make.
- Do you want to receive payment for a disability that was the result of an accident, sickness or both?
- Do you want to receive payment for a partial or total disability
- Do you want to receive payment for a permanent or temporary disability
- You will need to understand what disabled means in your policy. Some policies will consider you disabled if you are unable to do your usual occupation or any occupation you have studied and, or trained for or any occupation at all.
- Will your policy cover you for pre-existing illnesses or sickness
- How long do you want to receive payments for?
- You will need to decide on whether or not you wish to receive payments if you are already receiving money from another source such as workers compensation or Centrelink disability payments. Some policies will not make payments if this occurs or they could reduce the payment by the amount you are receiving.
- You also need to find out if your are covered by the policy even if you weren’t working or unemployed at the time the disability occurred.
What will your income protection insurance benefits be?
This is normally calculated based on your income when you took out the policy or on your income over a number of previous years. If there is not one attached ask the insurer for a schedule to see how much you will receive. Once again the insurer may not have checked you stated income when you complete the income protection insurance policy, but once you make a claim they certainly will so insure you can produce supporting evidence such as tax returns and other supporting documentation.
Completing the application form for your policy.
Ensure you answer all the questions fully and completely as possible, if you need make the agent or broker clarify any area’s you don’t understand. Be sure to complete all the details requested on the form.
There are a large amount of insurance companies which offer this cover and many different types of income protection policies which have different levels of cover and terms and conditions it is best to get financial advice from a financial planner ensuring you receive the best cover for your personal situation.
Disclaimer
This document is for information purposes only, and must not be relied upon as a substitute for professional financial advice or legal advice.
Source: David Reed Financial