The waiting period dictates how long you have to wait before you are eligible to receive payment under your income protection policy following a claim. You will not be able to lodge a claim until the expiry of the waiting period and you should allow for the fact that it could take some time for the insurance company to process the claim before paying your first entitlement.

In choosing a waiting period it is important to consider your financial commitments such as mortgage and other debt payments and the short term funds you have at your disposal. Unused sick leave and annual leave entitlements may also influence your choice of waiting period. Ideally the shorter the waiting period the better such as 14 or 30 days (however some companies may not offer these options to certain blue collar occupations). However significantly lower premiums can be achieved by accepting a longer qualifying period.

The Claim Escalation Option is important in the event of a claim as it will ensure that the monthly benefit you are paid is increased in line with inflation. If you choose to purchase cover to age 65, this option is highly desirable as your claim could extend over a prolonged period. Conversely if you are purchasing cover for a benefit period of only 2 or 5 years you may decide the escalation option is not as important and save the extra cost on top of the premium.

One of the major factors influencing the size of premium is occupation. White collar workers and professionals will generally be charged lower premiums than blue collar workers due to the generally lower risk of injury. This is also a major point of differentiation between the companies with some choosing to target particular occupation groups with lower premiums, e.g. nurses or doctors. There are some occupations which are not covered by any insurance companies or by only a few, e.g. actor, model, pilot, bicycle courier and armed forces. Comparing premiums using Compare Insurance Quotes can be of help in identifying the cost effectiveness of each policy as a first step in achieving the best overall package for your particular circumstances.
See Special Considerations for Doctors.

Income Protection policies are very complex products and policy definitions can differ greatly between companies. One of the most important definitions to compare between policies is “total disability”. There are three types of total disability: inability to perform duties, reduction in income and reduction in hours. Some policies only have one definition of total disability while others have all three. Being able to choose between definitions at the time of an income protection claim can increase your probability of success.

Like TPD insurance, the type of duties or employment you must not be able to perform will govern whether you are considered “totally disabled” or not under an income protection policy. Some policies define employment to be any employment, including lower paid unskilled work. It is important therefore that your policy will cover you if you are unable to work in your regular or “own” occupation.

Cover against contracting HIV or the AIDS virus is automatically included is some policies. However others offer the ability to exclude it and achieve a lower premium payable.

Both stepped and level premiums are available. However because of the cost of locking in a flat or level premium into the future, level premium policies are usually substantially more expensive in the early years.

With an Indemnity policy the monthly sum insured is not a guaranteed amount – it is the maximum benefit payable. The actual benefit is calculated as a percentage of the income earned in the period prior to making a claim and evidence of income is not required until a claim is made. If your income falls after you take out cover your claim will be based on the lower income amount. These policies are best suited to salaried employees who expect their incomes to be constant or rising in the future.

Agreed Value policies offer a guaranteed minimum monthly sum insured (which cannot exceed 75% of gross income at the time of taking out insurance). Evidence of income must be provided to the insurer at the time of application. These policies remove the uncertainty that you may be paid less if your income has fallen over the period preceding your claim. These policies are particularly suited to self employed applicants who can meet the past income evidence requirements. Newly employed or self employed applicants may find that initial cover will only be available on an Indemnity basis until they have an established income history.