The needs of small business owners who commonly experience a fluctuating income year-to-year differ to salaried full-time employees whose incomes are generally very stable. It’s important to understand the differences in the types of Income Protection contracts and what it would mean in the event of a claim.
There are two types of contracts; an indemnity contract and an agreed value contract. The definition and conditions for each can make all the difference to your payout in the event of a claim.
The below illustration highlights the key differences:
- You can be insured for what you earn at the time of application
- No proof of income required when you apply
- If you make a claim, you are then required to verify your income at the time you make the claim
- If you income has reduced since you applied, your claim may be paid on the reduced amount
- Usually, when benefit payments are assessed at the time of claim, the insurer will consider your earnings from 12-24 months prior to you lodging a claim
- Employees who earn a regular salary and can easily prove it may benefit from this option
- You can be insured for the income you have proven
- Proof of income required when applying
- You know what you will receive, regardless of any changes to your income
- Premiums are generally 15-20% higher
- Individuals with a fluctuating income like freelancers, small business owners or the self-employed may benefit from this option
Your situation and needs will help you decide what type of Income Protection policy is appropriate for you. To learn more about your Income Protection options, contact your financial adviser today on 1300 850 757.
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the information, consider its appropriateness to your circumstances.
Why not follow, like or link in with us on social media?
You can find all the latest news and posts from Complete Financial Balance, ask us a question, send us your comments and more by following the links below.