How Income Protection Works

Income Protection is one of the most important insurances you can have. Income Protection has a number of different features and terminology that you need to understand to make sure that your policy is tailored just for you. The main features you need to know are:

Benefit period
Waiting period
Agreed Value v’s Indemnity
Extended v’s Basic

Let’s look at how the Waiting Period works

The Waiting Period refers to how long you have to wait before being paid a claim. The standard waiting periods offered are:

14 days
30 days
60 days
90 days
1 or 2 years

There are a number of reasons why there are different waiting periods:

Employees usually have sick leave accrued, so long term employees can take a longer waiting period, as they know they can rely on being paid their sick leave first.
Self employed people on the other hand who have no sick leave, need to make sure that they are covered with the shortest waiting period they can afford, so that their cash flow continues.
A 2 year waiting period is very common where a person has a ‘total but temporary benefit’ under their superannuation plan – so they tailor their personal income protection policy to start at the time that the total but temporary benefit stops.

The other main reason is to give people choice and flexibility with price, as the shorter waiting periods are generally more expensive.

Which waiting period is the best?

Generally, the shorter the better. The standard is 30 days. The other thing to remember is that all insurance companies pay in arrears – so even with a 30 day waiting period, your household will not see any cash until the end of the next month.