How to Compare Income Protection Insurance Benefit Payment Periods
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If you are serious about protecting your income, it is essential that you give real consideration to the benefit payment periods being offered as part of your income protection insurance quotes.
The benefit payment period for an income insurance policy is defined as the maximum number of years that the policy will continue to pay you if you can't go back to work because of your disability. A policy with a 2 year income benefit payment period will cease making payments to an insured after 2 years, irrespective of whether the person has recovered or has returned to work.
Depending on your current occupation (and some other considerations), policies are generally available with maximum benefit payment periods from as little as 1 year - to policies that are designed to continue providing you with income benefit payments for your lifetime if you remain disabled.
As you would expect, the cost of income insurance will be greater as the benefit payment period increases.
Some companies offer products that have a payment period differential - i.e. a different maximum benefit period depending on whether the disability has resulted from an injury or an illness. For example, a policy may offer benefits all the way to age 65 for a disability resulting from an accident - but for a maximum of 2 years if the incapacity has come about due to sickness.
When comparing policies with a benefit payment differential, it also becomes very important to consider how each policy defines the terms 'accident' and 'sickness'. This is because a disability that was caused by an accident and classed as an injury could be re- classified as an illness by an insurance company.
For example, when a policy defines injury as occurring as a 'direct result of an accident', it means that, unless otherwise stated, complications arising from the injury are unlikely to be covered by that definition - and would potentially be re- classified as an illness for the purposes of the claim.
If the policy pays for only 2 years sickness but with a lifetime injury benefit, there is a significant incentive for the insurer to keep on top of this.
Individual circumstances will dictate what benefit period is most suitable but, it's worthy to note that the majority of long term disability claims are for illness, not injury.
It is also worth considering whether it would be preferable to have a smaller monthly benefit amount paid to you for life than to get a bigger monthly claim payment that might run out a very long time before your full recovery.
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