Opinion & Analysis
IPAW: Options to consider to make income protection more affordable for your clients
07 Sep 2021
Options to consider to make income protection more affordable for your clients
Buying an income protection policy is not unlike buying a car. Most people don’t need a car with all of the bells and whistles. They don’t need the fancy stereo, the heated seats, or the robot in the dashboard that makes hot chocolate. Same goes for income protection cover; not everyone needs a short waiting period, a large monthly benefit, or a benefit period that lasts until retirement.
Since income protection quotes are personalised to the client, policies don’t come with a big red price sticker until after the features have been confirmed. But that doesn’t mean the price is fixed. Here are three things that you can consider to reduce a quote for your client and make cover more affordable.
1. Reduce the benefit period
The benefit period is how long the income protection will pay out for in the case of your client being unable to work.
Of course, this is also the most expensive option. Your client can save money on their premium by reducing this benefit period, in fact short-term income protection products can be around half the price of policies that pay until retirement. They can have cover stop at age 65, or have it terminate after ten, five, or two years. Some insurance companies may have different, less, or more benefit period options than those described above.
2. Increase the deferred period
Every income protection policy comes with a waiting period (also called a deferred period). This is the amount of time between when the disability, or illness starts or when the accident occurs and when the insurance company will start paying out the benefits.
The most expensive policies have short waiting periods, which can be as short at 1 week. These waiting periods make sure that the claimant gets the benefits as quickly as possible, and will allow them to claim for shorter-term illnesses, but will also drive the cost up of the policy significantly.
As an example, you may consider a 90 day waiting period. This may be a sweet for a lot of people (and a cost-effective option on policies). As long as your client has the savings to cover themselves for three months, a 90-day waiting period helps them save money on premiums without sacrificing too much convenience.
If your client needs to get a cheaper income protection quote, it is possible to get waiting periods as long as 180 or 365 days. While this will lower the quote, your client will need to make sure that they have the savings to keep going before their income protection policy kicks in.
3. Lower the monthly benefit
The monthly benefit of an income protection plan is designed to replace the take-home income of the job your client can no longer perform. The maximum monthly benefit that most insurance companies allow is between 60 and 70% of current gross income. This roughly lines up with take-home pay.
However, if your client thinks they can get by with less, it is possible to lower the monthly benefit and save money on the premium. It might help to build a model budget to see how much they can afford to cut out of their monthly expenses. Having an illness or disability usually means taking on unexpected long-term medical expenses, making this option potentially risky.
This article is based on an original article by Policy Genius published on the Council for Disability Awareness website and does not constitute financial advice. The Council for Disability Awareness is a nonprofit organization dedicated to educating the American public about the risk and consequences of experiencing an income-interrupting illness or injury. The CDA engages in research, communications, and educational activities that provide information and helpful resources to wage earners, employers, financial advisors, consultants, and others who are concerned about the personal and financial impact a disability, long term illness or accident can have on wage earners and their families. This does not constitute financial advice. IPTF thank CDA for their support in raising awareness of the importance of income protection.