Temporary Total Disability/Income Protection, the “ins and outs”

I’m going to do a couple of important things in this article in dealing with what should be an important subject. I say should be because it’s an area of insurance in which so many Australians are often drastically underinsured.

Income protection, sometimes referred to as TTD (Temporary Total Disability) should be front and centre when thinking about insurance but unfortunately it isn’t. It seems most people when thinking about their insurance needs think about “worst case scenarios” which I think in their minds are life cover and TPD (Total and Permanent Disability).

It’s the, what if I leave my family without providing funds for their future or, what if I can never work again mindset, and fair enough, those are big concerns that need to be considered.

However you may also find yourself with an injury, medical or condition that lasts anywhere from a few weeks up to a few years and in that time, without sufficient funds, you can find yourself and your family in a compromised position.

RATE DETECTIVE DEFINITION

Income protection/TTD is:

Insurance that provides funds for someone whose injuries leave them totally unable to work for a period of time.

So income protection is important, but who’s it most important for? Well everyone earning income could benefit, but for some people it’s possibly the most relevant type of cover. Say you’re a twenty something person with no dependents but you do have a mortgage.  Taking out life cover might not be as relevant an option because the “life” you really need to insure is not the ongoing lives of dependents left behind, but the cost of living and financial commitments that you’d still have to meet should you have an accident or illness.

Important considerations in taking out any policy are, how long it pays for, 2, 5 years or up to age 65.

There are also three types of income protection policies you can take out, what’s known as indemnity, Agreed Value and policies offered within Superannuation Funds; let’s look at the differences.

Indemnity:

  • The more common and generally less expensive type
  • Verify your income at the time of claim
  • Subject to salary fluctuations

Agreed Value:

  • Generally more expensive option
  • Pay out the benefit agreed to reflect your income at start of policy
  • Are not affected by salary changes
  • Agreed value can be"endorsed agreed" or agreed. Endorsed agreed involves supplying financials at time of application.

Superannuation Funds:

  • Often cheapest option
  • Indemnity based
  • Less flexible with fewer features

How much cover will you need? Well remember the benefit is designed to replace your existing salary so you want to aim to get as close to that as you can afford. You need to consider expenses such as mortgages, dependents, maintaining investments and obviously covering your daily living costs. The maximum amount of cover is 75% of your income.

There are also different structures to premiums, you can go:

Stepped Premiums:

  • They start out cheaper but increase over time

Level Premiums:

  • They start out more expensive but become the cheaper option after 10/12 years

So as you can see from the preceding information, there are a number of important elements to consider when taking out income protection. To help you with this process we have expert Rate Detective consultants available.

To have an initial chat just call or email us, or take advantage of our easy web chat facility on our website. Whoever you speak to at Rate Detective you can be rest assured you’ll be in the expert hands of an informed, professional.

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Published on July 7-th, 2014 in Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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