At a glance:

  • The right income protection insurance is crucial for ensuring financial stability during challenging times.
  • Researching potential providers, comparing policies, and consulting professionals, if necessary, are essential steps in the selection process.
  • Take the time to make an informed decision and secure comprehensive coverage that provides peace of mind.



The conversation about income protection insurance usually trends towards whether or not it is a valuable investment for you to make as part of your overall personal and business financial strategy.


But assuming you have made the clever decision to take out an income protection policy, protecting your future financial position in the event of an unforeseen incident that stops you from earning your normal income. How do you work out which is the right policy for you?


Income protection insurance is a well-established financial strategy for ensuring that, in the event of illness or injury, you can continue to receive regular income payments up to a certain percentage of your normal salary or wages. It is a particularly sensible strategy for those who run their own business, either as a sole trader or SME, where there may be little or no alternative recourse to income.


It serves as a foundation for sound financial stability, ensuring that you can maintain your current lifestyle and support your family even during challenging times. Choosing the right income protection cover is of utmost importance to safeguard your financial well-being.


We present you with a comprehensive step-by-step guide to help you select the most suitable income protection insurance cover tailored to your unique requirements.



Mastering the Art of Income Protection: Unveiling the Secrets to Tailoring Your Coverage


Like any financial strategy, choosing the right income protection insurance strategy requires carefully considering your specific personal and business circumstances. Getting it right means assessing the specifics of the alternatives and making sure the policy you choose is the right one for you. Take the time to ask the following questions:



What’s covered?


Understanding what events and incidents you can be covered for is an essential starting point. Some policies, for example, may have limits on particular types of illnesses.



How much will I get paid?


Income Protection insurance payouts are typically calculated as a percentage of your historic income over a defined period of time. This can vary up to 85 percent of your income over the agreed period, although typically is about 75 percent of your pre-incident income for the previous 12 months.



How long will I get paid?


Typically, this depends on how much you are prepared to pay. It will be limited either by a fixed number of weeks or age.



How much cover do I need?


This bit means a bit of work on your part – what is your family budget to meet the basics? Think about mortgage or rent payments, school fees, travel costs, car loans, monthly utility bills, typical grocery costs, and similar.



How much will it cost?


The first consideration here is – shop around. Assuming you know the answers to the other questions, look at the alternatives that meet your specific requirements.



What about the fine print?


Understanding the fine print is essential, particularly for income protection insurance – if you and your family are depending on this income to maintain your quality of life, you need to know, for example, whether the policy provides for the insurer to change the goalposts on any critical components in the future based on changes to your health, income or other personal circumstances.



Understanding Your Needs


Before delving into the intricacies of income protection insurance, it’s essential to assess your personal and financial situation. By carefully evaluating your circumstances, you can determine the level of coverage that best aligns with your needs. Here are the key steps involved:



Assessing Your Personal and Financial Situation


Start by gaining a comprehensive understanding of your personal and financial circumstances. Take into account factors such as your monthly income, living expenses, savings, and any outstanding debts. This evaluation will provide a solid foundation for determining the appropriate level of income protection insurance you require.



Identifying Your Income Protection Requirements


Once you have a clear picture of your personal and financial situation, it’s crucial to identify your specific income protection requirements. Consider factors such as your occupation, industry, and associated risks.


Evaluate the waiting period, which is the duration between the claim and the commencement of benefit payments, and the benefit period, which is the length of time for which benefits will be paid. This assessment will enable you to tailor your income protection cover to suit your individual needs.


By thoroughly understanding your needs and evaluating your circumstances, you can make an informed decision when selecting an income protection insurance policy that provides comprehensive coverage and peace of mind.



Key Factors to Consider When Choosing an Income Protection Insurance Cover


Choosing the right income protection insurance cover involves considering several key factors that will ensure you have adequate protection and peace of mind. By evaluating these factors, you can make an informed decision that aligns with your specific needs and circumstances. Here are the key considerations:



Benefit Amount and Waiting Period


The benefit amount is the percentage of your income that will be replaced by the insurance policy if you are unable to work. It’s essential to determine the appropriate benefit amount based on your current income and financial obligations. Consider the level of coverage you would need to maintain your lifestyle, support your family, and meet your financial commitments.


Additionally, you’ll need to choose a waiting period, which is the duration between the start of your disability and when benefit payments commence. Assess your financial situation to select a waiting period that aligns with your ability to cover expenses during that time. Shorter waiting periods offer quicker access to benefits but may come with higher premiums.



Benefit Period and Policy Terms


The benefit period refers to the length of time for which benefits will be paid if you’re unable to work. Consider the duration that provides adequate coverage based on your circumstances. Common options include one, two, or five years. Longer benefit periods offer more extended coverage but may come with higher premiums.


When reviewing policy terms, carefully read and understand the terms, conditions, and exclusions. Pay attention to any restrictions or limitations that may impact your coverage, such as specific medical conditions or exclusions for certain activities or occupations. Ensure that the policy terms align with your needs and provide comprehensive protection.



Occupation and Coverage Restrictions


Different insurance policies may have occupation-specific coverage limitations. Some policies may not provide coverage for high-risk occupations or may have specific exclusions or restrictions. Evaluate how your occupation is classified by the insurance provider and ensure that your coverage aligns with the nature of your work.


Additionally, consider the impact of pre-existing conditions on your coverage eligibility. Some policies may exclude coverage for pre-existing conditions, while others may offer limited coverage after a waiting period. Understand how pre-existing conditions are defined and how they may affect your ability to make a claim.



Premiums and Affordability


Evaluate the premium costs associated with the income protection insurance policy. Premiums can vary based on factors such as age, occupation, benefit amount, waiting period, and benefit period. Consider the affordability of the premiums in relation to the coverage and benefits provided. Ensure that the premiums fit within your budget without causing financial strain.


Additionally, consider the payment frequency options. Some policies offer the flexibility to pay premiums monthly, quarterly, or annually. Choose a payment frequency that aligns with your financial preferences and cash flow.



Policy Exclusions and Limitations


Thoroughly review the policy exclusions and limitations. These are specific circumstances or events that may not be covered by the insurance policy. It’s important to understand what is excluded to avoid any surprises when filing a claim.


Common exclusions may include self-inflicted injuries, acts of war, or certain high-risk activities. Ensure that you are aware of these exclusions and understand how they may impact your coverage.



Claim Process and Support


Understand the process for filing a claim and the documentation required. Evaluate the level of support provided by the insurance company throughout the claims process. Look for policies that offer a streamlined and straightforward claims process with clear instructions and efficient communication channels. Access to knowledgeable and responsive customer support can significantly ease the claims experience.



Customer Reviews


Research the reputation of the insurance provider for customer service, responsiveness, and claims support. Look for reviews or testimonials from policyholders to gain insights into their experiences. Positive customer feedback indicates a reliable and reputable insurance company that prioritises customer satisfaction.


By considering these key factors, you can confidently choose an income protection insurance cover that suits your needs, offers comprehensive coverage, and provides the support you require in times of financial uncertainty.



The Selection Process for Income Protection Insurance


When it comes to selecting an income protection insurance policy, you need to invest time and effort into researching and comparing different options. By following a systematic selection process, you can make an informed decision that aligns with your needs and provides the necessary coverage. Here are the key steps involved in the selection process:



Researching Potential Insurance Providers


Start by conducting thorough research on potential insurance providers. Look for reputable companies that specialise in income protection insurance and have a strong track record in the industry. Consider factors such as their financial stability, reputation for customer service, and claims handling process. Online reviews and testimonials from policyholders can offer valuable insights into the experiences of others with the company.



Comparing Different Insurance Policies


Once you have identified several potential insurance providers, compare the policies they offer. Pay attention to the key features, such as benefit amounts, waiting periods, benefit periods, and policy terms. Evaluate the coverage options available and how well they align with your specific needs. Consider factors such as the maximum percentage of income covered, the range of waiting period options, and the flexibility of benefit periods.


It’s also important to compare policy premiums and understand the factors that influence pricing, such as age, occupation, and chosen coverage options. Look for policies that offer a good balance between coverage and affordability.



Consulting with Professionals, if Necessary


If you find the process overwhelming or have specific concerns about your unique circumstances, consider consulting with professionals who can provide expert advice. Financial advisors or insurance brokers can offer guidance tailored to your specific needs.


They can help you navigate through the various policy options, explain complex terms and conditions, and assist in determining the most suitable coverage for your situation.


Professional advice can be particularly valuable if you have a complex financial situation, special occupation requirements, or pre-existing health conditions that may impact your coverage eligibility.



Understanding Policy Terms and Conditions


Before making a final decision, thoroughly review the terms and conditions of the insurance policies you are considering. Pay close attention to any exclusions, limitations, or special conditions that may apply. Ensure that you understand the scope of coverage provided and any circumstances that may void your policy or impact your ability to make a claim.


If you have any questions or uncertainties regarding the policy terms, reach out to the insurance provider directly for clarification. It’s crucial to have a clear understanding of what the policy covers and any obligations or requirements you need to fulfil.



Making an Informed Decision


Based on your research, comparisons, and consultations, make an informed decision about the income protection insurance policy that best meets your needs. Consider factors such as the coverage provided, the reputation and stability of the insurance provider, and the affordability of the premiums. Remember that the right policy for you may not necessarily be the cheapest option, but the one that offers the most comprehensive coverage and aligns with your specific requirements.


By following these steps and investing time in the selection process, you can choose an income protection insurance policy that provides the necessary coverage and peace of mind in the event of an unexpected illness or injury.



In conclusion, choosing the right income protection insurance is a critical decision that requires careful consideration. By following a step-by-step process and considering key factors, you can make an informed decision that aligns with your needs.


Begin by understanding your personal and financial situation. Assess your income protection requirements, including the percentage of income you want to cover and the duration of coverage needed. This self-assessment will help you determine the appropriate benefit amount and waiting period.


Next, conduct thorough research on different insurance providers and compare the policies they offer. Look into crucial aspects such as benefit amounts, waiting periods, benefit periods, and policy terms. It is important to ensure that the coverage options provided align with your specific needs and are affordable for you.


If necessary, consult with professionals such as financial advisors or insurance brokers who can offer personalised guidance based on your circumstances. Their expertise can help you navigate through the complexities of income protection insurance and make an informed decision.


Take the time to review and understand the policy terms and conditions of the insurance options you are considering. Pay attention to exclusions, limitations, and special conditions that may apply. If you have any questions or need clarification, reach out to the insurance provider directly.


Finally, armed with all the necessary information, make your decision with confidence. Consider factors such as coverage, the reputation of the insurance provider, and the affordability of premiums. By following this comprehensive process, you can choose an income protection insurance policy that provides the necessary coverage and supports your financial well-being during unexpected circumstances.


Protecting your income is a proactive step towards securing your financial future. Remember that your income is a valuable asset, and having the right insurance coverage in place offers peace of mind and financial security for you and your loved ones. Invest the time and effort required to choose the most suitable income protection insurance, and you will reap the benefits when you need it the most.


If you’ve made the decision to take out income protection insurance, you are a step closer to a secure financial strategy. But now it’s time to start working through the details and make sure that what you’re paying for will meet your needs.

Mike Wallis

Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.