INSURANCE By Steve Wright
With different types of insurance cover available, taking the time to understand the detail will not be wasted.
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ncome cover types: indemnity, loss-of-earnings, agreed value – what’s the difference? Income cover comes in several different types. The difference between them centres mainly on how the benefits are calculated on disability, how they are taxed and how much clients can insure. This is important because the different benefit calculations could result in a big difference in the amount your client receives at claim time. Then again it may make no significant difference; it all depends on the client’s circumstances at claim time. None of us has a reliable crystal ball so this uncertainty makes it tricky sometimes to settle on a recommendation. Don’t be surprised to feel like it’s more a question of selecting the lesser evil. For these purposes we will concentrate on how the disability benefit is calculated but please be aware some providers may include other differences between the different types of income cover they offer. Indemnity cover: As the name suggests, indemnity income cover pays benefits based on the client’s income at claim time (predisability income). This pre-disability income is defined in the policy wording and typically (but not always) defined as the average monthly income earned for the best 12 consecutive months during the previous three years. Other definitions include the monthly average for the last year or last three years for example. How the pre-disability income is calculated, along with
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