If comparing income protection insurance options were simply a matter of comparing the prices of the various policies on offer, that would be a relatively easy task… but with the myriad of policy variations on the market, all designed with different outcomes in mind, the job can be quite complex for the uninitiated. In this article I have identified what I think are the main things you might want to consider along with price to make sure you are getting true value for your insurance money.
1. How is “disable” defined in the policy?
The definition of disability is the door you will need to open to receive payment from an income protection insurance policy.
Some policies express disability as being disabled to the point that you cannot perform certain tasks of your occupation, other policies base their definition on your ability to continue earning income. Some policies offer a combination of both.
There are also many variations within these two main definitions that could affect your ability to file a claim.
Remember, your insurance policy is a legal contract between you and your insurer, so the way things are defined in that document will determine how your policy works at the time of claim.
2. How long will my income policy continue to pay me if I have a major claim?
Some policies will continue to pay for life in the event of a permanent disability and others have benefits that stop after just 12 months.
There are also many policies on the market that have a different maximum claim period depending on whether your income protection claim is the result of an accident rather than illness.
If you have (or are considering) a policy with a different payout for injury versus sickness, then you should also ask…
(a) how both injury and illness are defined in the policy and…
(b) whether a claim could be jeopardized if complications arising indirectly from an injury are classified as a disease.
3. How long after filing a disability insurance claim do I have to wait before I get paid?
Policies may have a deductible of 7, 14, 30 days or even more before you are entitled to claim payments. The longer you can afford to manage financially before you need a replacement income, the cheaper the price will be.
You should also find out if the policy pays weekly, biweekly, monthly in arrears, etc.
If an income protection policy has a 30-day excess and you pay monthly in arrears, then you could be waiting 2 months or more before you start to see the cash flow.
4. How much will my income protection policy actually pay me each month if I have a claim?
More specifically, you need to find out if the insured amount is an agreed value amount or if your right to claim was calculated based on actual pre-disability earnings which could vary depending on when you file the claim.
Depending on your policy, you may be required to prove your income at the time of claim, while other policies accept proof of income at the time of insurance purchase.
5. How does my income insurance cover me if I have a partial disability?
You will have to be aware of…
a) if the policy includes disability benefits that limit your earning capacity but do not prevent you from working fully and
b) if partial disability benefits are restricted to allow payment only after a period of total disability. Remember, there are many diseases in particular that are degenerative in nature and could affect your ability to survive financially.
6. How do my income protection insurance rates change over time?
The rates can be fixed for the term of the policy or graduated, that is, they increase over time. They can also rise further with the CPI.
More importantly, you’ll want to know if there are any rate penalties you may incur as a result of having a claim.
7. What help does the rehabilitation income policy provide?
After a particular long-term disability, there may be a time when you feel you want to return to work to improve your position.
It is important for you to know whether the company will help you in this way or hinder you by offsetting any future income you may earn with future benefit payments.