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How Income Protection Works


Income protection insurance allows buyers of various ages to protect their families financially in case they cannot work due to injury or sickness. Some insurance policies offered in Australia also offer benefits to policy holders who have been retrenched or are unemployed for a short time.

Depending on the age, occupation and health, buyers can be protected for up to 75% of their annual income. Some insurance companies also offer additional coverage of 8% if the buyer qualifies. The cut off age for this type of insurance is between 60 – 75 years. Good contracts usually offer an extended cut off age where as cheaper contracts offer a lower cut off age.

All income protection covers offer a monthly payment to policy holders who meet the requirements of the insurance company however before getting the first payment, the buyer has to wait for a set number of days. This period is known as the cooling off period or waiting period since the buyer is not offered any benefits during this period. The cooling period affects the cost of the policy and other factors that also affect the policy include the type of contract selected, the buyer’s health, age, gender and the buyer’s occupation. People who travel a lot or have high risk jobs will be charged a higher premium compared to people who have low risk jobs that do not involve traveling such as desk jobs.

The benefit period is the period in which the buyer can enjoy certain perks offered by the insurance company. The primary perk offered is a monthly amount and secondary perks that may be offered include a death benefit and surgery benefits. While many insurance companies offer both transplant and cosmetic surgery benefits, others charge a small fee for these perks.

There are two types of income protection insurance plans offered to buyers and these two plans are, agreed value contracts and indemnity contracts. Agreed value contracts ensure that the policy holder will receive a fixed amount every month despite if he earns a lower amount than while applying for the insurance. Buyers who opt for indemnity contracts are asked to submit financially documents at the time of submitting the claim and the buyer’s current finically records while influence the amount of money he receives from the insurance company. Good policies that charge a higher premium allow people to choose which type of policy they want, but cheaper policies offer only indemnity contracts.

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