DIY Review Checklist for your Income Protection Insurance

Whilst a regular review both of the level of income protection cover that you own and the price you are paying for it are both important, there are some other more critical issues that need to be addressed to ensure that the piece of mind that your income protection insurance policy brings you is not merely a false sense of security.

This does not suggest that your insurance agent or broker isn't looking out for your interests but, if you are unfortunate enough to have a claim on your income insurance policy, it is you that has to live with the consequences of the decisions you make. Possibly for the rest of your life!

Here's a quick list of things that you should be checking.

Seems like a simple enough question ... you have to be disabled ... but there is a substantial difference from one policy to the next as to what constitutes being disabled. Consequently, there are many, many circumstances where some policies will deem you disabled and others will not. Some have "income- based" definitions, others use "duties- based" definitions. Some have "own- occupation" disability definitions, others define disability as an incapacity to perform "own or any other" occupation.

It is therefore of utmost importance that you understand exactly how your policy defines the term "disabled" and whether it's the most appropriate in your financial and occupational circumstances.

Some policies pay lifetime benefits and others cut out after one or two years.

Some policies index benefits to inflation in the event of a claim whilst others do not, resulting in the erosion of the buying- power of those benefits over time.

It may be that the amount you insure is an "agreed value" but, in many cases, the amount you may receive when you claim may be limited by your earnings leading up to your claim.

You may have a policy excess of 7, 14 or 30 days. Your policy should also specify the frequency of payments, e.g. weekly in arrears, monthly in arrears, etc.

For example, if a policy has a 30 day excess and pays monthly in arrears, you will need to wait at least 2 months for your first claim payment.

Some policies require you to satisfy their definition of total disablement before being eligible for partial disability benefits - meaning that benefits during a recovery period may be forthcoming whilst no benefits would be payable for degenerative disorders such as disc disease and many illnesses.

Where available, the policy of choice is one that is guaranteed renewable and non-cancelable by the insurer ... irrespective of any changes to your health, occupation, future claims or other factors.

If you are ever unfortunate enough to have an income insurance claim, it can become extremely difficult to find another policy, even many years after a full recovery. So you should demand a policy with continuity for the rest of your working life.

In closing, it should by now be apparent that ensuring you have the best income protection insurance for your money is not a hit-and-miss affair. The cost of getting it wrong can be devastating financially.

This check list is in no way comprehensive and, before entering into an insurance contract of any kind you should seek professional financial advice.