An income protection insurance policy is a non-medical insurance plan that provides income replacement benefits in the event that an individual is unable to work due to certain disabilities. The policy assures the income of the main breadwinner. It can be used to provide a person with an alternate source of income until he/she recovers from illness or injury, retires from their career, finds a new job, etc. It is common knowledge that the main breadwinner of the house bears a huge responsibility, from paying bills to taking care of the family. However, if the unexpected were to happen, what would happen to the dependents? An income protection insurance policy provides financial support to the insured in case of any disability.
People usually think that income protection insurance is an expensive affair. However, this is not true. It can be bought at an affordable price, especially if you are aware of certain tips and tricks.
Here are 5 tips that can help buyers.
Always read the Product Disclosure Statement (PDS) of the plan
Since the policy is directly related to your well-being, it is essential that you read the PDS carefully. However, before you read the PDS, you should gather information about the insurer. A good way to do that is by going through unbiased financial review websites like www.australianinsurancereview.com.au . The review of the insurer will provide you with all the relevant information that you need about the plan and the provider. It will also assist you in making a decision regarding the plan.
However, it is not enough to know about the plan. It is important to understand the terms and conditions before you can sign on the dotted line.
Know how much cover you require and for how long Your income protection insurance policy should match your income and financial obligations. This can be determined only after you calculate your gross and net income. However, it can be difficult to find out the amount of cover needed. If the following factors are considered, the calculations become easier. 1. Necessary expenses – This includes household expenses, food, clothing, etc. 2. Debts – This includes credit card bills, loans, mortgages, etc. 3. Additional expenses – This should include expenses like child care, education, etc. When you consider these, you will know the amount of coverage that you will require. For example, if after considering the necessary expenses, debts, and expenses, you find that your net income is $5000, you will need a cover of approximately $60,000 per year.
Don’t choose a waiting period that is too long. The waiting period is the length of time that the insurer will pay out the benefit. The longer the waiting period, the cheaper the policy will be. However, people usually make the mistake of choosing a longer waiting period because they want to save money. When opting for a longer waiting period, you run the risk of being without an income during the waiting period. Therefore, it is advisable that you select a waiting period that is shorter but does not exceed 2 years.
Opt for inflation protection Inflation protection ensures that your benefits keep pace with inflation. This amount is calculated based on the Consumer Price Index (CPI). Therefore, when you opt for inflation protection, you can choose a future income that will ensure the amount will cover your expenses. However, it can be quite expensive. Therefore, it is best for you to choose an inflation protection rider when you have the option of choosing it. However, if your employer offers you this option, you should go for it because it will lower the cost of your premiums.
Know the difference between your own occupation and any occupation. Own occupation means that the policyholder must be disabled from working in his own occupation. For example, if he/she is a Doctor, he/she must be disabled from working as a Doctor, and this policy would payout. Any occupation means that the policyholder must be disabled from working in any job. This is more common. However, you should opt for your own occupation as it is more beneficial.