Managing the wait period and benefit period on your Income Protection Insurance
Income and mortgage protection are some of the more complex types of cover in the marketplace as there are many optional extras and variables that can affect your premiums such as; payment periods and benefit wait periods. As a rule of thumb, the longer the benefit and wait period, the less your associated premiums will be. However, with insurance it is not always about finding the best price, rather it is about finding the right co ver as the wait period and benefit period you select could be the difference between financially surviving or financially struggling.
The wait period associated with income protection is the amount of time that you will need to ‘wait’ until you receive money from your insurer should you make a claim. Generally, a wait period can range anywhere from four weeks all the way up to two years. However, the most common recommended wait periods are four weeks, eight weeks and twelve weeks.
When selecting the wait period for your income protection, it is important to consider the following factors:
- How much sick leave and annual leave do you have owing?
- Do you have any savings that you can access until you receive a payment from the insurer?
- Can you potentially rely on your partner’s income for a period of time?
In regard to the benefit period associated with your income protection, this determines how long you could potentially claim a monthly benefit from your insurer. In general, your benefit payment options range from one year all the way up until age 75.
When selecting the benefit payment period for your income protection it is important to think about how long it may take you to financially adjust to a situation where you are unable to return to work in the longer term. For example, if you could not return to work in the foreseeable future, how long would you or your family need to have a replacement income for? Could you downsize your home to reduce your debts or could your partner continue working to support you? Perhaps you are close to retirement age and you would survive financially if you had a shorter benefit payment period?
It is important to note that most insurers will let you increase the wait period or decrease the benefit period on your income protection without having to go through an underwriting process. However, requests to decrease your wait period or increase your benefit period will most likely result in a new application with the insurer and there is a chance that your request will be declined if you have developed serious health conditions or have a riskier occupation since taking out your original cover.
As the above outlines, it really is a balancing act to selecting the right benefit period, and once you combine this with a wait period, it can seem like your options are endless. However, an experienced adviser can help you decide what wait period and benefit period combinations may be best for your income protection policy all the while taking your budget into consideration.