Why Income Protection Is Worth Thinking About
It can be difficult to tell when you will need a safety net for your family. If you become incapacitated or sick, and are unable to work, you will want to make sure that your family can still receive a regular income without having to worry about their financial future. While many may not know what to do in such a situation, there is still an option available.
Income Protection Insurance is a commonly used method that is used to ensure your family’s financial security. It pays benefits to the policy holder when they are incapacitated and unable to work due to an accident or illness. It can be a crucial way to keep your family covered when you have no other options.
Selecting Agreed Value or Indemnity
When you are ready to select a policy, it is important to understand your options. One of the first things that you will need to do is choose between Agreed Value or Indemnity policy, both of which are significantly different. With an Indemnity policy, you will be insured for what you tell the company you earn, and if you need to make a claim you will need to verify your income at that time.
If your income has reduced (maybe due to short periods of sickness), then your total benefit will be reduced if it doesn’t allow for the full sum insured to be paid. If you choose an Agreed Value policy, you prove your income when you apply. The great thing here is that once your sum insured is agreed, you will be covered regardless of your income at the time of claim. Planning ahead and considering your situation is the best way to make the most of these policies.
Determining the Waiting Period
The waiting period for your income protection is identified as the length of time that you would need to be disabled in order to receive benefits. These waiting periods can range from anywhere as low as two weeks up to two years. Varying your waiting period can have a huge impact on your family’s ability to get by during illness and injury, but can have a similar impact on the cost of your insurance.
By properly discussing your options in the event of injury we can ensure that the best option for you is selected.
Determining the Benefit Period
This is another important option which you need to select when you apply. In a nutshell, the Benefit Period is the length of time that your policy will continue to pay a benefit once you are in receipt of benefits. Once you have reached the end of your Benefit Period, you will stop receiving your income protection benefits. There are many different policies available, ranging from Benefit Periods of just 1 year, all the way up until you are aged 70.
Clearly, selecting a low Benefit Period at an early age might leave you high and dry, which is why financial advice can help you understand the impact this may have.
Tax Deductible Premiums
Another advantage that comes with income protection is the fact that the premiums are tax deductible. This significantly reduces the overall cost of your policy by reducing the tax you pay. However, Income Protection policies can be arranged via your superannuation fund too, which means even in the event that you are unable to afford cover directly, you could fund your premiums from your superannuation balance.