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How Income Protection Insurance Works

Income protection plans work by protection Australian residents when they cannot work due to health reasons such as illness or injury. These policies ensure that policy holders get timely compensation payments after filing a claim. Buyers are given an option to choose the insured amount and usually buyers can insure up to 75% of their yearly income. Buyers who have additional benefits such as retirement benefits as part of their salary package may also be offered additional income protection of 8%. Listed below are a few facts that will help you learn how income protection insurance works.

To make use of the benefits offered by the insurance company, the buyer has to file a claim to get the first compensation amount. While some insurance companies’ process claims within just a few days, other companies can take up to a few weeks to process claims. Good insurance companies have made the process of filing a claim a relatively easy task.

Before policy holders get the first payment from the selected insurance company, policy holders have to wait for a few days. This is known as the cooling off or waiting period and people who opt for customizable plans are given the option to choose the number of days they would like to wait. Although the waiting period can range from 2 weeks to 2 years, some insurance companies do not allow policy holders to wait for more than 6 months while other companies do not allow policy holders to wait less than a certain number of days. The type of policy selected and the price of the policy will determine the waiting period.

Based on the provided compensation amount, these plans can be categorized into agreed value contracts and indemnity agreement or indemnity contracts. Based on the validity of the policy these plans can be categorized into long term covers and short term covers. Based on the benefits provided these policies can be categorized into 2 categories, that are comprehensive plans and basic covers. Comprehensive or better plans are flexible which means that buyers have the option to choose between levelled, stepped premiums and monthly or annual premiums. Cheaper policies offer limited benefits, a limited benefit period and lower level of protection.

While understanding how income protection insurance works, buyers should note that there are 3 main factors that affect the price of these plans. The first and most important factor is the level of protection that is the insured amount. The second factor is the cooling off period and the third factors is the type of compensation contract selected. Other factors that may play a role in determining the cost of the selected plan include but are not limited to, the term of the plan, additional perks selected and the benefit period of the plan.

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Income protection is a crucial part of any comprehensive financial plan. If you’d like some help customising the correct policy for you, or want to know more about the income protection insurance benefits.