Since the year kicked off, we’ve been blogging about protecting your income. The truth is we all get up every day and trade most of our time, and energy, for a pay-cheque each month. Protecting that pay-cheque is vital in a world where creditors own most of our major assets, like our house and car until we are able to pay them off.
At InsuranceFundi we believe that protecting your income is the foundation on which to build your risk insurance portfolio. Nobody plans on getting seriously ill or injured, but life isn’t interested in our plans. Bad stuff happens to good people every day.
The best we can do is take out some insurance against the risk of not being able to work and therefore bringing home a cheque each month. Once you’ve decided that your income is worth protecting, with an insurance policy, the next question you need to answer is this – should you go direct or with a traditional insurance company?
There are pros and cons to both sides of the answer. There are some fundamental differences in the way direct and traditional insurance companies structure their income protection policies, and in the next few blog posts, we are going to look at these differences in more detail.
If you become disabled today, how long do you want to have to wait before your income protection policy kicks in? That would depend on a few factors, wouldn’t it? How much spare money you have saved is probably the main determining factor, isn’t it? If you have six months’ worth of income stashed in a “rainy day” account, you might be able to bite the bullet and hold out for half a year before your income protection policy would need to kick in. But let’s face it…that’s wishful thinking. Most of us are one pay-cheque away from not being able to make our car and bond repayments.
Direct insurers have longer waiting periods than traditional life insurance companies. The norm is 3-months, but in some cases, you could wait up to 6-months. These terms and conditions are generally hidden in your policy document and not necessarily something the call-centre agent needs to disclose.
So, can you wait that long?
That’s only a question you can answer. Traditional insurance policies (sold through a Broker or Financial Advisor) have much shorter waiting periods – you can wait for as little as 7 days before you can get a pay-out. Sure, it costs more for a shorter waiting period, but what are the implications of having to wait longer?
The benefits of taking your income replacement policy with a direct insurer
- It’s convenient and you can take the cover out over the phone or online
- No medicals are required – only voice-logged medical underwriting questions will be asked.
The disadvantages of taking your income replacement policy with a direct insurer
- The waiting period before you can claim will be at least 3 months
- They will probably have a very broad definition of “own occupation” disability. This is something we will cover next time.
- The cover can only be in place up until age 65
The advantages of taking out an income replacement policy with a traditional insurer:
- You can get a comprehensive offering with a very short waiting period
- You can deal face-to-face and get some advice (not something you can get, when going direct)
- You can get multiple quotes from different insurers to compare premiums.
- You can choose to have the cover in place up to age 70.
The downside includes the following:
- You’ll have to fill in some paperwork
- You’ll have to set up time for a meeting or a chat over the phone
- Some broker commission will be due, but this is worked into your monthly premium
- You’ll need to go for some blood tests/medicals
- Your cover will only be in place once your medical underwriting requirements are finalised and your policy is issued.
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