There are two types of income protection policies: indemnity and agreed value. For the purpose of this article, we’re referring to stand down and benefit periods that apply to indemnity policies. An indemnity policy pays 75% of your total gross income. Within indemnity income protection insurance are two very important coverage periods that affect when you begin receiving your benefits and for how long. They also affect the cost of your insurance premium. Let’s take a look at each one more in-depth.

Income Protection Stand Down Period

Also called the income protection waiting period, it refers to the length of time you choose to wait before the policy begins paying your monthly benefits when you are unable to work. Stand down period options range from 14 days to 180 days.

Here’s how the stand down period works:

For example purposes only, let’s say you select a 30-day waiting period. Next, let’s say you have an extended illness and are unable to work, so you file an income protection claim. Since you selected a 30-day stand down period, when your claim is accepted you will begin receiving benefit payments 31 days after the date you filed your claim.

There are a few things to keep in mind when deciding which stand down period to choose. Think about how quickly you would need money coming in if you were unable to work for some time.

Consider all your workplace benefits, such as sick pay, paid holiday time, paid personal days and annual leave pay. If you have ample accumulated time from your employer, you can select a longer stand down period because your employee benefits will kick in first. The longer you can wait, the more you save on your insurance premium.

Income Protection Benefit Period 

This describes the length of time you will be paid benefits in the event you need to use your income protection coverage. A benefits period can be either a time span, such as 2 years, 5 years, or a certain age, such as payable to age 65.

Here are some things to keep in mind when deciding which benefit period to choose:

A longer benefit period typically has higher premiums because it is covering the expense of providing a long-term claim, meaning the insurance company will be paying you for a longer time. If your budget allows, you may want to consider a long benefit period so you are covered in the event of long-term disability.

Both the stand down and benefit periods can be tailored to your specific circumstances to create an income protection policy that meets your needs. When taking out an income protection policy it is best to discuss with a financial adviser so you can get a policy that works for you and you are not paying for things you don’t need.