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Comparing Deferment Periods for Income Protection policies

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By Andrew Clark

Understanding the deferment period options in your income protection insurance quote gives you the opportunity to make significant savings on your income protection without sacrificing the security offered under the policy.

The deferment period, otherwise known as the "benefit waiting period" or "policy excess" is the amount of time for which you will need to have been disabled under the terms of an income insurance policy before any benefit payments under the policy can start.

Typically, income protection policies offer deferment periods of 14 days, 30 days, 90 days, 6 months or a year. Some policies do offer a 7 day deferment and it may be possible to find a policy with no excess at all but there will be a significant trade-off on other policy features, benefits and/or price.

When you select a longer excess, your premiums will be lower.

As an example, selecting a 30 day deferment as opposed to a 14 day deferment can mean savings of well over 30% with some insurers. A 90 day excess can mean savings of up to 60%.

Generally speaking, there are no benefits paid during the deferment period.

Therefore, if you suffered an illness that kept you from work for 3 months, a deferment period of 30 days would mean that you would be paid for months 2 and 3, but not for month 1 of your disablement.

It is not uncommon for people to select a longer deferment period in order to afford a longer benefit payment period and/or a higher monthly benefit.

This is appropriate particularly where the insured feels he or she could manage financially for a few months, or even a year without benefit payments but wants to protect their lifetime earning capacity.

For example, having to wait an extra few weeks or even months at the beginning of a claim is far less likely to cause financial ruin than having a long term disability - and a policy that stops paying benefits after 2 or 5 years!

Some policies that offer a choice of deferment periods also have a "defined injury" benefit. This is effectively a list of common injuries for which, without otherwise limiting the policy, the policy guarantees a minimum payment period depending on the injury.

The reason that we mention "defined injury" benefits here is because they are often back-paid to day 1 of the disability -    irrespective of the deferment period applicable to other claims under the policy.

For example, a policy may have a 30- day deferment period - but will pay a minimum of 2 months benefit for a broken leg - or 6 weeks for a broken arm, etc.

Policies with defined benefits are very popular with trades and manual workers because relatively minor injuries (like a broken arm or leg) can have a much more significant impact on earning capacity of the blue collar worker than for white collar workers.

Defined benefits therefore provide the option to reduce premiums by selecting a longer deferment period whilst retaining the security that the most common short term injuries will be compensated.

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