How much is the monthly benefit of your income protection?
If you’ve already decided on an income protection insurance, this question probably has an easy answer for you.
But if you haven’t, this might be a question you’re struggling with.
It’s important to learn as much as you can about the types and benefits of your insurance policy before signing any contract. Especially when these elements may vary between insurance companies and policies.
However, there are a few basic things you need to know about your income protection value in order to decide the best fit for your assets.
Here are a few essential things to know…
Income protection 101
Income protection is a type of insurance policy that supports people who, due to some injury or illness, are unable to work for a certain period of time.
In other words, an income protection provides the insurer with an ongoing monthly benefit payment throughout their inability/disability period.
Before going into the specifics of income protection value make sure you check out this article: How Much Do You Know About Income Protection? It has all the income protection essential information you need to know in order to understand this type of insurance policy.
Income protection value: indemnity vs agreed value
The amount of the ongoing monthly benefit amount is calculated from the insurer’s pre-disability earnings.
Usually, the monthly benefit payment can vary between 75-85% of the insured’s gross income.
In some cases, depending on how much you earn, the monthly benefit payment can surpass the 85% limit. However, the exact value will depend on the insurance policy and company.
The pre-disability earning assessment will largely depend on the type of income protection insurance policy: indemnity and agreed value.
Indemnity value benefits
When you choose an indemnity value benefit you are required to specify your gross income.
Based on your declared income, the insurance company will give you a quote on your monthly benefit value.
If you suffer an injury and need to claim the benefit, you will be asked for additional documentation to attest to your gross income value. Based on all the documentation you provided, your insurer will determine your eligibility for the ongoing monthly benefit payment.
Tip: If the determined ongoing monthly benefit payment is lower than the quoted value, you will receive the lesser amount.
[ctt template=”7″ link=”78tai” via=”no” ]If the determined ongoing monthly benefit payment is lower than the quoted value, you will receive the lesser amount.[/ctt]
This usually happens when your gross income reduces or fluctuates over time, from the date you established the Income Protection insurance policy and prior to claiming.
When should you choose an indemnity value benefit type?
This can be the right type of indemnity value benefit if you don’t expect your income to fluctuate in the future.
Tip: Most of the time, insurance premiums for the indemnity value benefit are considerably lower compared with the agreed value benefit type.
You might also be interested in: Personal Insurance 101
Agreed value benefits
On the agreed value benefit, the ongoing monthly benefit payment is determined at the start of the policy, not at the time of the claim.
You will be required to provide additional documentation to attest to your gross income value. The insurer will evaluate your pre-disability income based on the documentation you provided and they will determine your ongoing monthly benefit payment.
The good news is your ongoing monthly benefit payment will be decided at the start of your income protection policy.
Tip: Unexpected income fluctuations along the way won’t influence your benefit payment.
Why choose an agreed value benefit?
It provides certainty. The benefit amount you decide at the beginning is the exact amount you’re going to get paid in case you need to claim your benefits later down the road.
Tip: The insurance premiums payable are usually higher compared to an indemnity value benefit.
When it comes to choosing the right income protection policy for you, make sure you are informed. The specific types of benefits for your income protection insurance may vary depending on policy or insurer.
Income protection can help you secure your income and assets in case of an unfortunate event.
Choose to protect yourself and your family by protecting your income. I can assist you with any questions or concerns you may have regarding your insurance and income protection. Let’s get in touch now.