An agreed value income protection policy allows you to lock in your monthly benefit at application time, rather than at claim time.
This ensures that even if your income diminishes between application and the time you go on claim, your monthly benefit will not change.
How much does an Agreed Value policy cover you for?
With an agreed value income protection insurance policy, your monthly benefit payable is based upon 75 per cent of your personal exertion income, that is, your pre-application income.
What is your Agreed Value pre-application income?
Most income protection companies generally consider your pre-application income as:
Your average monthly income for the 2 years before your income protection policy went in force.
Providing proof of income for an Agreed Value policy
If you are considering an agreed value policy, it’s important that you are able to provide sufficient proof of income. While it is possible to provide proof of income at claim time, we recommend that you provide all proof of income at application time.
If you provide proof of income at application time, some income protection companies will refer to your policy as a guaranteed (or endorsed) value policy, which is essentially the same as an agreed value policy, except that you have already provided proof of income at application time, rather than at claim time.
Providing proof of income at application time is recommended as it is usually much easier to provide the relevant proof of income than it is at application time, where you may have to search for financial documents from years ago.
Documents that are generally requested to provide proof of income include:
- Pay slips, group certificates or a letter from your employer confirming your income
- Business and personal tax returns and assessment notices
- Financial accounts, for example, profit and loss accounts, balance sheets, etc.
Who should apply for an Agreed Value Policy?
Agreed value income protection policies are most suited to those with fluctuating incomes who are not averse to paying a bit extra to guarantee that they will receive a fixed monthly benefit upon claiming on their policy.
Some of the advantages and disadvantages of both include:
- Your monthly benefit at claim time will remain the amount agreed upon at application time, even if your income has diminished.
- Providing your proof of income at application usually ensures a faster administration of your claim.
- Providing financial evidence at application time prevents overinsurance, as the amount to be insured has already been substantiated.
- Agreed value and guaranteed value policies attract slightly higher premiums than other policy types
Occupations that may experience a fluctuating income and are therefore most likely to take advantage of an agreed or guaranteed value policy include sales people who may earn varying commissions and contractors who may experience irregular periods of work.
Comparisons with an Indemnity Value Policy
Compared to an indemnity income protection value policy, an agreed or guaranteed value policy offers the following advantages:
- Fixed monthly benefit – your benefit is locked in and not subject to any fluctuations in income, whereas with an indemnity policy your benefit may decrease if your income is subject to change.
- Guaranteed Value Policy proof of income – as you provide your proof of income at application time, you will not have to search for hard to find financial documents at claim time as is the case with both agreed and indemnity value policies.
If you would like more information to compare income protection policies, please call 1300 135 205 to speak with one of our friendly advisors.