I have 60% of my income covered by an Income protection policy set up by a previous adviser several years ago (before I changed roles) and I am wondering whether I have to go through the whole process again to increase it to cover more of my salary? and why is income protection capped at covering 75% of my salary?
Top answer provided by:
In most cases, when looking to increase the level of income protection you hold, a new application would be required. Insurance providers require this information as personal circumstances often change over time such as your occupation and health which can affect premiums.
In saying that, there are a number of insurance providers that offer Guaranteed Future Insurability. This option is only available for income protection cover held outside of superannuation and allows policy holders to increase their benefit without providing any additional information. The option does have limitations in terms of benefit increase and events that allow cover to be increased, but it’s something to take into consideration.
Although you may have to complete a new application, many insurers now offer a tele-underwriting service which can streamline the application process. The tele-underwriting service negates the need to complete the medical questionnaire with your adviser in place of a 20-30 minute phone call. Keep in mind that medical information may still be required if requested by the underwriting team.
In regards to Income protection cover being capped at 75% of your salary, this is so there is incentive to return to work. The benefit payments of 75% is considered a sufficient amount to meet ongoing living expenses while recovering from sickness or injury. In some instances, returning to full-time employment is unachievable so the ongoing payment amount would allow the policy holder to meeting living expense for the agreed benefit period.
Income protection cover can become quite complex so it’s always best to speak with a trusted insurance adviser to ensure you take out the cover that’s right for you.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.