If you obtain a quote for income protection insurance, then two major product variables that will influence the price you pay are :
- The “waiting period”, and
- The maximum “benefit payment period”
There are many other variables to consider, but this post will just comment on these 2 variables,
At a very high level, the “waiting period” is how long you need to be disabled for before the policy will start making payments. And the “benefit payment period” is the maximum length of time the policy will potentially make payments, providing you are still disabled and meet the policy terms. There are many details associated with these features that will be found in each insurer’s product disclosure statement and should be considered.
Naturally, the shorter the waiting period, and the longer the benefit payment period, the more valuable the cover will be. And hence the more expensive the policy will be.
Common options in policies include waiting periods of 14 days, 30 days and 90 days (and even longer). And common options for benefit payment periods include 2 years, 5 years, to age 65 and to age 70.
What is the relative impact of these variables on the cost of cover ?
We prepared a range of quotes from one insurer for a male, non smoker, aged 44 to compare the impact of these variables and it showed the following :
- The most expensive combination (14 day wait to age 70 cover) would initially cost 2.8% of income.
- The cheapest combination (90 day wait with a 2 year benefit payment period) cost 0.6% of income.
- An illustration of the relative savings, by changing the waiting period or benefit period, compared to the most expensive option, is shown below :
The quote was prepared in April 19 using the insurer “Clearview” with “stepped” age premiums. The occupation used was an accountant and the salary assumed was $100,000 per annum with 75% insured using an “agreed value” product. The basic product was used with no additional options taken. Longer waiting period options were available but not considered.
If you would like advice on income protection insurance or a range of quotes from many insurers then contact Experien Insurance Services here.
