What is direct income protection insurance?
Income protection insurance cover is designed to help lessen the financial burden if you’re unable to work due to illness or injury. If you injure yourself or contract a serious illness and are forced out of the workforce for an extended period of time, this type of cover will ensure you still have money coming in and you can continue to provide for your family.
Income protection insures you for a predetermined level of your income, usually 75% of your salary, and will pay that amount for the period of time that injury or illness keep you out of the workforce. This provides a steady stream of income to help you stay on top of your finances and focus on your recovery.
You can purchase income protection cover either through a financial adviser or by buying direct from an insurance provider, or you can obtain cover through your superannuation fund. This article focuses on the pros and cons of buying direct life insurance.
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How is buying income protection direct different without advice?
Traditionally, insurance was something you purchased through a financial adviser. With expert knowledge and years of experience, the adviser is able to help you find the right level of cover for your situation.
However, direct life insurance is a more recent development, offering a sort of do-it-yourself option for people looking for insurance cover. Rather than obtaining expert advice, buying direct life insurance means you purchase your income protection cover directly from a life insurance brand or financial organisation.
Direct income protection cover is often available online, from a branch office or over the phone. This type of cover is typically easy to apply for, requiring no or very little medical information, and you can often also add other benefits such as total and permanent disablement cover.
In short, it’s designed to make taking out income protection cover as simple and hassle-free as possible, ensuring a greater number of people take out this important form of insurance.
Why consider direct income protection insurance?
There are several benefits to buying direct income protection cover. These include:
- It’s easy to apply. Purchasing life insurance through a adviser or consultant can seem like a complex and time-consuming process, something which deters many people from taking out cover. Direct income protection cover, however, is designed to make taking out insurance much easier. You can apply for cover quickly online or over the phone, while most policies will not require you to undergo any medical underwriting before having your application approved. It is designed to let consumers access adequate and affordable cover in a quick and easy manner.
- It’s simple and straightforward. Direct income protection insurance is designed to be as easy to understand as possible. This type of insurance is less about a complicated structure of benefits, which life insurance with advice can be, and is more about providing an adequate level of cover.
- You have the option of bundling your cover. Many insurance providers allow you to add benefits like total and permanent disablement cover or trauma cover to your income protection. This lets you tailor life insurance cover to suit your personal financial situation.
- You get a speedy response. You’ll know virtually straight away whether your application for direct income protection insurance has been approved.
Disadvantages of obtaining an income protection policy from a direct insurance provider
Despite the benefits of buying a direct income protection policy, this approach does have a handful of drawbacks. These include:
- Added responsibility. When you buy life insurance with advice you have the security and peace of mind that comes with knowing you are receiving the best possible advice for your needs. However, buying direct cover means the onus is on you to ensure you end up with the right level of cover. It’s up to you to decide on the best waiting period and benefit period. How much cover do you need? Should you go for a policy with an "any occupation" or an "own occupation" definition? There are a range of factors you’ll need to consider, plus you’ll need to read the product disclosure statement closely, to ensure you make the right decision.
- Not as many options. When you buy insurance with advice, you have access to hundreds of different policy options, each of which can be tailored to closely suit your needs. An insurance consultant can also take you through the benefits and drawbacks of each policy, explaining all the terms and conditions to ensure you have a clear understanding of what cover you’re getting. The breadth of choice when it comes to direct income protection cover, however, is nowhere near as broad.
- Price. You may end up paying more for a direct income protection policy than one purchased with advice. This is because of the lack of extensive medical underwriting, which may result in more of a "one size fits all" approach to direct income protection policies.
Always review the policy features when buying direct income cover
When you’re buying income protection from a direct insurance provider, it’s vital that you compare the different policy features and options available. Without an adviser on hand to run you through the ins and outs of competing policies, it’s up to you to make sure you understand what each insurance plan has to offer.
One of the most common problems with direct income protection is that many applicants end up taking out an inadequate level of cover. This is because they do not fully understand their insurance needs and exactly how much each policy covers. The sums insured on direct life insurance policies are also generally cheaper than insurance purchased with advice.
It’s simply essential for you to develop a clear understanding of different policy features. Take the time to read the PDS closely and make sure you comprehend what each feature of your policy means.
As a general rule, direct income protection insurance policies will contain more exclusions than policies purchased with advice. These extra exclusions can be for things like some hazardous or dangerous sports; claims related to drug or alcohol use, riots or acts of terrorism or war; risky occupations and a range of pre-existing medical conditions.
Take the time to do your research, compare your options and read all policy documents closely to ensure that you make an informed decision.