What is the Cost of Income Protection?

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Income protection is a type of insurance designed to provide financial support in the event that an individual becomes unable to work due to illness, injury, or disability.  

The cost of income protection can vary depending on several factors such as your age, occupation, health (whether you there is additional risk to provide cover which will result in a loading or exclusion), the level of coverage you need, the waiting period before benefits begin, and the duration of benefits. Other key factors that can change the outcome of the cost of the policy can be as follows: 

1) Smoking Status

Smokers are considered to be at a higher risk of illness and disease, which can lead to a higher cost of insurance premiums.

2) Lifestyle Factors

Certain lifestyle factors, such as participation in hazardous sports or risky activities, can increase the cost of insurance premiums. 

3) Policy Features

The cost of the policy may vary depending on the features and benefits that are included. For example, a policy with an inflation adjustment feature may cost more than a policy without those features. This can also be affected by the length of the waiting period and benefit period. The waiting period is the time the accident or sickness occurred which has resulted in time off work for the policy to commence. For example, a knee reconstruction would result an individual being kept off work duties for an extended period. If the policy had a 30-day waiting period, there is the possibility that an income protection claim could be claimed and then will provide a benefit period until recovered or until the defined benefit period ceases. 

4) Underwriting Criteria

The underwriting criteria used by the insurer to assess the risk of an application can also impact the cost of the policy. For example, if an insurer considers an application to be high-risk based on their medical history or occupation, the cost of the policy may be higher because of exclusions or loadings. 

As the cost of income protection policies can vary in price, it will also depend on the personal and household cashflow where the policies can be funded. The 2 methods include personally owned policies which are paid from the out-of-pocket costs or owned inside superannuation. Depending on the structure, the superannuation fund owns the insurance policy and rolls over the balance of the premium, which can be monthly or annually. There are risks associated with funding premiums from your superannuation fund as it reduces the retirement balance, which is known as risk erosion.  

It’s important to note that the cost of income protection insurance may increase if you have a higher-risk occupation or medical conditions, or if you choose a shorter waiting period or longer benefit period. When selecting an appropriate policy, it is important to review at least 3 different providers to determine the cost, but also the features that are available within the provider that mostly suits your needs and objectives.  

How can Vision help?

If you are interested in learning more about how Vision’s advisers can explain and guide you throughout the process of receiving income protection and the varying factors which can impact your premiums, contact us today

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