One of the most important types of life insurance is income protection cover. As the name suggests, income protection cover pays you are benefit in the event that you cannot earn income due to an illness or injury that put you off work.
When choosing the right cover, there are two important decisions for us to make. The first is to select the right policy. This is a policy that will include everything that you need it to include, and that is issued by an insurer who is easy to work with and has a reputation for happily paying legitimate claims.
Having selected the right policy, the next question becomes implementing a policy in the right way. The main variable here, for income protection cover, is selecting an appropriate waiting period. The waiting period is the amount of time between becoming unable to work and receiving your first insurance benefit. Waiting periods typically range between 14 days and two years. Under a 14 day waiting period, you need to be off work due to illness or injury for 14 days before you can go ‘on claim.’ Under a two-year waiting period, you need to be off work for two years before going on claim.
So, why would we ever recommend a longer waiting period? Basically, the longer the waiting period, the less likely it is that you will make a claim on your policy. Most illnesses and injuries are relatively short-term. Far more people are sick or injured for 14 days than are sick or injured for two years. Because you are less likely to make a claim on a policy with a longer waiting period, the insurer is happy to offer a policy for a lower premium. That is, if you’re prepared to accept a longer waiting period, you pay less for your insurances.
But selecting the appropriate waiting period is not merely a matter of trying to save money. It is actually a matter of deciding whether and how you could support yourself if you experience an illness or injury shorter than your chosen waiting period. After all, there is no point in saving money on the premium if that means buying a policy that does not suit your circumstances.
The standard waiting periods are 14 days, 30 days, 60 days, 90 days, 180 days, one year and two years. If you select a waiting period of, say, 60 days then you have to decide how you would support yourself in the two months between becoming unable to work and receiving your first benefit. If, for example, you have a lot of money in the bank then you might decide that you can support yourself in the event that you are off work for a short period of time. On the other hand, if you have no savings and many short-term financial commitments, such as a mortgage, children, etc, then you might prefer a shorter term waiting period to make sure that a short-term illness or injury does not become a financial calamity.
Basically, it comes down to a decision about the extent to which you can ‘self-insure.’ The more you can insure yourself, the less you need to pay for external insurances. Our job is to help you make the right decision when it comes to selecting the appropriate waiting period. So, please do not hesitate to contact us to discuss your income protection or any other life insurance needs.