We are getting asked more and more often to quote on longer wait periods when providing quote estimates for Income Protection insurance, the reasoning being that people believe that they have enough in savings to see themselves through the initial waiting period (the time during a claim that you are not eligible to be paid a benefit at all) to justify the savings a 60 or a 90 day wait will bring. This may not be the case when we consider the chances of a claim over the longer term, say 10 years.
Generally, we have three main reasons for supporting a shorter wait period (the premiums and savings are illustrative and are based upon a 30 year old male, non-smoker, dentist);
The first reason is a financial one, there is only a difference of $249 in annual premium with a 90 day wait. If you were to have a single claim that lasted for longer than 90 days in a 15 year period, with a 60 day wait you would receive an additional $13,125 in benefits and the total premium paid for a 90 day wait policy would only be $5,029 less over this 15 year period (see table below). Even a 30 day wait premium cost over this 15 year period of time results in a near break even if you make at least 1 claim, ($13,403 difference in premiums from a 60 day wait) again see table below..
Another significant factor is that the majority of claims we see are 90 days or less, as a result with a 90 day wait in this scenario you will not be able to begin a claim as benefits will only be payable if you have 91 or more days off work. In our experience you are less likely to be off for 90 days or more, therefore with a 90- day wait less likely to qualify for a claim, when compared to a 30 or 60 day wait. We do have a small percentage of clients with a 90 day wait and we witness the impact this extended waiting period has at claim time. It is a long time without income, we have clients that now regret choosing a 90 day wait and want to reduce their waiting period however are unable to do so due to a change in their health (the reason for their claim).
Lastly, dentists are generally on the highest marginal tax rate and income protection premiums are primarily tax deductible (approx. 95% of the premium). So the after tax cost is lower for income protection insurance.
For these reasons, we tend to urge our clients to reconsider your choice of 90 day wait, especially with the relatively minor premium difference for a 60 day wait. The overwhelming majority of our clients have a 30 day wait which we have recommended for the above reasons.
If you have any questions or would like to discuss your particular circumstances please get in touch at email@example.com or call to make an appointment on 1300 077 123.