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Income Protection Insurance


The type of contract

  • An indemnity option policy (generally) pays the lesser of the monthly insured benefit or 75% of the best 12 consecutive months income from the previous three years. The payment under this option is taxable, but the premiums are deductible.
  • With an agreed value option the insured benefit is agreed at the time the policy is established. While the tax treatment of this option is open to debate, the payment under this option is not generally taxable, and therefore the premiums are not deductible.

Disability and Benefit Definitions
Insurers' definitions of these terms do differ. Review your insurer's definitions for total and partial disablement, and for the benefits payable under each scenario. These are the most important terms in any policy.

Waiting Period
Benefits generally become payable after four weeks, but a waiting period of up to 13 weeks can reduce the cost of premiums considerably.

Inflation Indexation
Ensure that your benefit increases with the rate of inflation - both while your policy is in force and while you are on claim.

Other Benefits
There are many other benefits and options attached to income protection insurance. These range from booster benefits, through to assistance with retraining.