Premiums for Income Protection Plans are usually paid
monthly by direct debit or annually. Three standard
types of cover are often offered.
1. Level Cover: Benefits and contributions remain level
through the plan term.
2. Increasing Claim: Benefits increase at a 5% rate
during the course of a claim.
3. Increasing Cover: Both benefits and contributions
increase at a 5% rate annually.
Cover is sometimes offered whilst abroad, but benefits
are limited. If you take a lower paid job after a period
of illness, you may only be entitled to a portion of
your Income Protection Benefit as the amount received
would be based on the ratio of your drop in income to
your original income. Rehabilitation and hospitalisation
benefits are sometimes added as extras, but the small
print needs reading in every case. A waiver of premium
is a useful tip to know, as if you are not earning,
this clause allows your Plan to continue with the Insurer
covering any costs of premium whilst you are ill or
suffering from an accident.
There are also several different types of premium throwing
further confusion into an already complicated melting
pot:
Guaranteed premium. The premium is set at the
beginning and does not change at all throughout the
life of the policy.
Renewable. These usually run for a 5-year term
after which you have the right to renew the policy,
regardless of your state of health. The premium is recalculated
when you renew.
Unit linked. The premium can depend on investment
performance or claims levels that the company is experiencing.
If a company exceeds its investment objectives, these
policies can build up a cash value. If they underachieve,
you may face increased premiums for the same level of
cover. With so many variations on a theme, it is often
very difficult to decide which policy offers the best
value.
Fortunately, providers are becoming increasingly flexible,
and the day when you can completely customise your policy
is not too far away.
