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Investor Focus: Am I really covered? What to look for in the fine print of an insurance policy Posted on October 9, 2018
Therefore it is important to consult an expert when acquiring and reviewing insurance policies because much of the fine print can be legal jargon.
Here are the top 5 elements that can make a big difference in whether you get paid or not when making a claim.
1. Own Vs Any Occupation (TPD/Income Protection Policies)
There are two different definitions regarding being unable to return to work:
Own Occupation: To make a claim under the own occupation definition, you must not be able to work again in your own occupation.
Any Occupation: To make a claim under the any occupation definition, you must not be able to recommence work in any occupation suited to you. This is much more general and often you may not be paid if you are still able to find occupation in another job.
2. Agreed Vs Indemnity (Income Protection Policies)
The definition of income determines how much you are paid if you make an income protection claim. Income protection policies can be either ‘agreed value’ or ‘indemnity’ policies:
Agreed value policies are designed to provide certainty regarding income protection benefits, by assessing income at time of policy commencement. At claim time, the agreed monthly benefit will be paid regardless of any changes in your income.
Indemnity policies do not guarantee the level of benefit. As your income fluctuates so does your potential benefit amount. The insurer assesses your income at the time of claim, the monthly benefit is calculated using the 12 months immediately prior to claim up to a specified maximum amount. Indemnity provides a lot less certainty of what you will paid.
3. Waiting Period and Benefit Period (Income Protection Policies)
Waiting period refers to the length of time you need to wait before you are able to make a claim on your policy. Waiting periods can vary from only 14 days to up to 2 years. It is important you know your waiting period and have a strategy in place to be able to fund your lifestyle until you can make a claim.
The benefit period is the length of time the insurer will pay you a benefit if you are unable to work due to injury or illness. Typically benefit periods are 2 years, 5 years or until expiry age (normally 60 or 65). We recommend all individuals have waiting periods of to age 65 because income will be required until this point.
4. Stepped Vs Level Premiums
When applying for cover you can select either a stepped or level premium structure.
Stepped premiums are linked to your age and increase as you get older. The disadvantage of stepped premiums are that typically the older you are the more likely you are to claim, however often the policy is too expensive to keep.
Level premiums remain constant for the term of the policy. Level premium rates are more expensive than stepped premiums in the initial years. However, level premiums become comparatively cheaper with time and can provide significant savings the longer you keep your policy for a long period of time.
5. Inside Super or Outside Super?
Different insurance policies can be held either inside or outside of superannuation. However this has an impact on both whether you can get access to the benefit and how much tax you might be liable for.
It is recommended that people review their insurance policies every year.