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How to compare Australian Income Protection Insurance

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By Andrew Clark

If you are considering your income protection insurance, then you may have noticed that there is a huge range of policy options available to you.

Regrettably, most people won't find out whether the choice they made when purchasing their income protection insurance policy was sound - nor whether it will do the job required of it until claim time.

Comparing the merits of dozens of insurance companies is daunting enough but, with each offering it's own unique range of income protection products, and each product with it's own set of options and add- ons, ensuring that you get the best value income protection for your money is going to need a plan!

But before we get into the hard core comparison stuff, it's important to offer some insight into why terms, options and prices vary so much from one policy to the next.
Of course, policies are constantly being designed and redesigned in order to meet the demands of the changing income insurance market.

Customer feedback, market perception, broker input, claims experience and competitive forces are all contributors to the development of such a wide range of alternatives. It is because of the need for each product to differentiate itself from the pack that the customer is faced with so many choices.

Premium cost (price)

This may seem like stating the obvious, but, with income protection insurance you get pretty much what you pay for.

An early indicator of whether a policy is below par is when the price looks too cheap in comparison with others.

A cheap policy could simply be a reflection of a particular company's favourable treatment of your occupation or other circumstances.

The price you pay will usually increase each year that you hold your policy so it's also important to compare the lifetime costs of income insurance quotes.

Benefit Payment Period

Maximum benefit payment periods under an income insurance policy can vary from short-term, where benefits are paid to a claimant for a maximum of 1 year to policies that will continue to pay the claimant for life .

Some policies differentiate between accident and illness claims, with different benefit payment periods applicable for each.

Deferment period

The deferment period works like a policy excess and it represents the amount of time that you will have to wait after making a claim and before the benefits can flow.

The longer the deferment period, the cheaper the premium should be. Most policies will have a range of deferment period options from as low as 7 days, the more popular deferment periods of 14 or 30 days and, depending on circumstance, waiting periods on 1 or even 2 years.

Monthly benefit amount

This is the monthly payment that you will receive in the event of a claim.

Seems pretty straight forward but you need to know a) will you be automatically offered more cover each year in line with inflation? and b) will the benefit amount be indexed in the event of a longer term claim?

It's also important to know whether the monthly benefit amount is an agreed value, or whether the amount that you receive can be recalculated at claim time.

Disability definitions

What does disability mean? What is the definition that you have to satisfy in order to get paid? These questions are answered by the policy definition of disablement and they vary considerably from one company to the next. Some policies' definitions focus on your ability to perform the duties of your occupation, others revolve around the change in income as a result of your disability. It is very important that you know how these differences might affect your ability to get paid at claim time!

Partial disablement

If your policy provides claim benefits for partial disablement, it is important that you know how these benefits are calculated and whether you have to satisfy the policy's definition of total disablement first - i.e. do you have to be totally disabled in order to claim for partial disablement or are partial disability benefits available for ailments with slow onset or with limited impairment?

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