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Choosing a suitable waiting period on your income protection plan

All income protection insurance policies have waiting periods. The waiting period is the time between being declared unable to work and receiving your first insurance payment. When you sign up for an income protection plan you decide how long you wish the waiting period to be (it usually ranges from two weeks to two years). Choosing an appropriate waiting period depends on a number of factors, including:

Budget: The longer the waiting period, the less you pay on your premium. You need to assess how long you can afford to go without income. What does your savings account look like and can you afford to dip into it? Do you have a mortgage? Do you have credit card repayments? These factors will all need to be taken into consideration when deciding on a suitable waiting period.

Accumulated leave: Have you accumulated a lot of sick leave and annual leave at your workplace? If so, you might be able to afford to choose a longer waiting period. If you don’t have much leave accrued, consider how long you would be able to survive without a steady income.

Risk: No one can predict the future but factors such as the current state of your health and the inherent risks in your profession can help you make an estimate as to the probability that you will be prevented from working in the future. Shorter waiting periods attract higher premiums because insurers consider there will be a greater chance of you making a claim.

Fine print: This is where an advisor can be extremely helpful. An advisor can help you sort through the minute details of different companies’ product disclosure statements to help you choose an income protection insurance policy that’s suitable for your circumstances.

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