How Income Protection Insurance Works
Income protection plans work by protecting people when they cannot go to work and earn money. These plans work by ensuring people get compensation payments from the selected insurance company when they file a claim. Depending on the plan selected, policy holders can protect 75% of their annual income and if policy holders have certain other benefits such as retirement benefits as part of their payment package then they can insure their income for an additional 8%.
Listed below are a few points that will help you understand in detail how income protection insurance works.
To get the first compensation payment from the selected insurance company, policy holders have to file a claim.
Most insurance companies try to process claims within a few days, but at times processing claims can take a few weeks. These days, filing an income protection claim is a relatively easy task.
Before getting the first payment from the insurance company, policy holders have to wait for 2 weeks or more.
This period is known either as the cooling off or waiting period. Buyers who opt for flexible plans can choose a waiting period between 2 weeks – 2 years, however, some insurance companies set guidelines for choosing a waiting period. This means that some insurance companies require buyers to wait for a fixed number of days before getting the first payment and other insurance companies do not allow buyers to wait for more than 6 months.
Income protection plans can be broadly categorized into value agreement and indemnity contracts.
Based on the tenure of the plan, these policies can be categorized into long term and short term covers. Based on the benefits opted for these plans can be divided into 2 categories that are basic plans and comprehensive plans. Good plans or comprehensive plans are highly customizable and these plans allow buyers to choose between monthly, yearly, level and stepped premiums. Cheaper policies do not offer many options and cheaper plans offer a lower insured amount.
While learning how income protection insurance works, buyers should remember that there are at least 3 factors that affect the cost of these policies. The first factor is the amount insured, the second factor is the waiting period and the third factor is the type of contract selected. Other factors that may influence the cost of these policies include the benefit period, the tenure of the policy and any additional benefits selected.
This may contain general advice. General advice is prepared without taking into account your objectives, financial situation or needs, and because of this, you should, before acting on the general advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs and if the advice relates to the acquisition of a particular financial product for which a Product Disclosure Statement (PDS) is available, you should obtain the PDS relating to the particular product and consider it before making any decision whether to acquire the product.