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How to Save Up to 50% Buying Income Protection Insurance

Simply put, income protection insurance, (otherwise known as disability insurance or sickness and accident insurance) provides an income in the event that you are disabled through sickness or injury.

Hopefully you will never have to claim on an income insurance policy but, in the event that you do, I'm sure that you would like to know that it will pay you as much as possible for as long as you need it.

Unfortunately, like most things in this world, getting the best will usually cost the most money.

So, in order to contain costs, a lot of people make sacrifices when buying income insurance by settling either for a limited benefit payment period (the maximum amount of time that your insurance company is obliged to pay you in the event of a claim) and/or for a lower monthly benefit (the amount that you get paid whilst on claim) than is needed.

Both of these money-saving strategies are seriously flawed however because the biggest cost to you could be the financial loss that you would incur should your disability be long term.

You could probably get by for a few months on a reduced income benefit and, let's face it, the likelihood of something taking you out of the workforce long term is pretty remote, right?

Well yes, the odds of you suffering a serious long term disability may be low... but the consequences of having inadequate long-term income protection could be devastating - and that's why we buy insurance... to deal with things we can't afford, not the things we can!

So consider this. Having no (or limited) income for a few months might cause you to be late in paying some of your bills, your mortgage and loan payments might fall behind and your credit card limits may become exhausted... but you will probably still survive financially.

You may have some benefits available through your employer and you may be eligible for some form of social security assistance. You may need to dip into your savings or to sacrifice short term plans such as a holiday or a new car, but none of that will be your financial ruin.

On the other hand, having to rely on friends, family, social security or other hand-outs should you develop a long-term degenerative condition is not a future that anyone aspires to.

So wouldn't it make sense then, rather than sacrificing your long term security, to consider an income insurance policy with a longer waiting period?

Often referred to as a "policy excess" or "deferment period" your waiting period is the amount of time after you have become sick or hurt that you become eligible for benefit payments under your policy.

In some circumstances, extending your waiting period from 14 days out to 30 days can mean a saving of up to 50% on your monthly premium.

It's also possible to buy policies with waiting periods of 6 month - or as long as a year, even two, although the savings in these cases are not usually as big proportionately as the 3 month waiting period option.

Now I know what you're thinking... a broken arm or leg won't last 3 months - and a minor injury is a considerably more likely occurrence than a long-term disability, particularly if you are young. But there are policies on the market that include what are known as 'defined benefits' that provide you with a guaranteed minimum payment for specified conditions (like broken arms or legs) and are not necessarily impacted by the waiting period.

As an aside, insurers that offer these defined benefits can do so because they are not particularly expensive claims to administer. After all, a broken leg is a broken leg. Hardly a need for second opinions, specialist visits or conjecture as to whether or not you are disabled. In fact a doctor's certificate and an x-ray are pretty much conclusive and, because the benefit is usually defined in terms of the number of weeks' payment you are to receive, then it's pretty much a case of open and shut from a claim perspective. Pay the money and close the file.

A word of caution however. Before jumping into a policy with a longer waiting period, you should find out exactly how the policy deals with recurrent disabilities. You don't want to have to wait 3 months twice! Most policies will waive the excess for a recurrence of the same thing but they may put a time frame on how long after the initial episode you can claim on a recurrent disability.

In closing, decisions relating to income protection insurance should never be taken lightly. Once we have become mature adults and start to grow older our health deteriorates, that's just a fact of life. So, if you are thinking about reviewing your existing income protection insurance or buying a policy for the first time, do it today if you can because you might not qualify for a new policy tomorrow.

And if you are not thinking about these things then you should be!

Oh, and always seek the advice of an insurance agent or broker with a specialty in this field.
 

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