What is an income protection increasing claims option and is it worth having?
An increasing claims option is an additional benefit offered under an income protection insurance policy. An income protection increasing claims option ensures that your benefit amount continues to increase after you claim for a monthly income protection benefit. It's typically offered by most insurance brands for an additional cost.
Why do people pay for this option?
Most income protection policies are designed to replace up to 75% of your regular income, but what you are paid out initially might not be enough down the road e.g. in 5 years (as the cost of living rises). If you have selected the increasing claims option for your policy, your benefits will increase every year either by a fixed percentage or by the yearly CPI increase.
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Income protection insurance is designed to replace your regular income when injury or illness mean you are unable to work. Created to help you manage your finances even when you are not earning money, this type of policy pays a monthly benefit equivalent to up to 75% of your regular income while you are off work.
However, if you suffer a serious medical issue and you are unable to work for years, receiving your regular monthly benefit amount may not leave you in the same strong financial position. Similarly, if you took out a policy 10 years ago, the monthly benefit amount that was suitable when you first applied for your policy will likely not satisfy your financial needs today. The cost of living rises every year, so it makes sense that you may need your benefit amount to also increase every year.
With this in mind, the vast majority of insurers offer an income protection increasing claims option with their income protection policies. This ensures that your monthly benefit amount rises every year, either by a fixed percentage or by the same amount as the CPI increase. This protects you and your loved ones against the rising cost of living and ensures that you will not suffer a severe financial impact when you are unable to work.
If you like the sound of the income protection increasing claims option, keep in mind that it is only available if your income protection policy has a benefit period of more than one year. Some policies offer long benefit periods that stretch until you reach a certain age, such as 65 or 70, so the income protection increasing claims option is definitely worth considering if you have such a policy. In addition, if you believe that cost of living increases could make it difficult for you to make ends meet while receiving a monthly benefit, consider adding this option to your policy.
In order to take advantage of the income protection increasing claims option, you will need to pay to have it added to your income protection cover. As offering the income protection increasing claims option will obviously lead to a greater cost for your insurer, this will be reflected in your insurance premiums. While the exact cost of this added option will differ from one insurance provider to the next, you can typically expect to pay an extra $10 or so per month in addition to your regular premium.
The business expenses benefit is another benefit available at an extra cost on most income protection policies. Self-employed people face many different risks and have different financial needs to regular employees, and this benefit is designed with self-employed customers in mind. If you are self-employed but you are unable to work due to illness or injury, this optional benefit is designed to ensure that all of your fixed business expenses will still be paid.
This offers crucial security and protection for those who run their own business, allowing their business to stay afloat even in the toughest of times. It is available for sole traders, working directors or those within a partnership. You may need to contact your insurer directly to find out whether or not this particular option is available to you.
Both the income protection increasing claims option and the Business Expenses Benefit can add crucial extra financial protection for many income protection policyholders. Speak to your insurer and examine your insurance requirements to determine whether either of these options is right for you.