What income protection benefit period should you choose?

Your choices in wait period and cover period can make a significant difference to the effectiveness of your insurance cover. Here’s what you need to know to make an informed choice:

Read more: The breadwinner's guide to income protection

Wait period

A wait period refers to the amount of time that you have to wait until you start receiving the benefits after you make a claim. It is also known as a deferred period.

The wait period can range from two weeks to two years, depending on your needs.

For example, Emma agrees to a wait period of one year in her income protection policy. She gets injured and makes a claim, which is accepted. One year later, she starts receiving her agreed monthly benefit.

How does it affect your policy?

A policy with a longer wait period tends to have cheaper premiums, as it will typically result in fewer payments overall from the insurer. This is not always true, however, as there are many other factors that contribute to your premium costs: your wait period is just one of them.

What length of time should you choose?

Before deciding on your wait period, you should consider the following questions:

• Would you be able to afford to pay out of pocket for the designated wait period?
• Do you have any debts that would need servicing in that time?
• Would you be able to afford additional potential medical costs?
• In general, could you and your family survive on a single/low/no income for this length of time?

The longer your wait period, the higher your risks are likely to be. However, you’ll also pay less in premiums. It’s a balancing act.

Cover period

Your cover period, or benefit period, defines how long you will actually receive your monthly benefit for, after you make a claim.

This can either be for a set period, such as two or five years, or up to a certain age, usually 60, 65 or 70.

How does it affect your policy?

The longer your income protection benefit period, the more expensive your premiums will become, in general.

For example, if you are in your thirties and are expecting income payments to last from now until you are 70, your premiums will be higher than if you were expecting a single slot of five years.

What length of cover period should you choose?

Before deciding on your cover period, you should ask yourself the following questions:

• How risky is my job and/or lifestyle?
• What are my chances of getting hurt or sick enough to the point I need payments until I retire?
• Would my family be able to survive on a reduced percentage of my income for this length of time?
• When do I actually plan to stop working?

If you are close to retirement age already, it may be worth only getting payments for a shorter period of time. This will cost you less, and you are planning to reduce your income soon anyway.

For more information on protecting you and your family with income protection insurance, download our free ebook below.