Key differences between advised and direct income protection

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on November 25th, 2021       

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According to news.com.au, 95% of Australians do not have adequate income-protection cover. When faced with the options of direct and advised income protection, many do not know the various benefits that will best work for their needs.

Between 2015 and 2016, 13% of Australians did not return to work after an injury. Those who had time off took an average of 2 weeks; and in serious cases took 9.2 weeks off from work. To cover the loss of income, for example, during the time you are injured, you could take out either a direct or advised income-protection policy. However, these two options have some differences.

Price

For the 69% of Australians still without income protection, and searching for it, the biggest difference between advised and direct income protection is price. On average, the cost of an advised income-protection policy is higher than direct income protection, around 35% more. However, if there are details listed in the fine print, this can result in the direct income protection working out more costly. Also, some people may score on one policy while others might not. Variables such as age, occupation, and lifestyle sins such as smoking, could impact the premiums. However, what has the biggest impact on price are details mentioned in the fine print.

Fine print

Going direct may offer some surprises in the small print. Firstly, when buying a policy direct, you are not buying a solution from a financial advisor. Instead, you are obtaining it from a salesperson working in a call centre. As such, information may be shared. Should you wish to take the cheaper route, you will therefore need to conduct your own research prior to a decision. Failing this, your cheap option could turn into an expensive option. For example, if you have pre-existing conditions, these may not be covered by the policy, cover becoming useful at a later stage of your life. By contrast, in advised income protection, the advisor will examine the fine print in detail. This means that when you come to claiming, the element of surprise is likely to have been minimised.

Other important details listed in the fine print relate to the benefit period, and partial disability. As such, advised income protection will offer a longer benefit period − up to 70 years − whereas direct income protection will end at 65 years of age. As for partial disability, advised income protection will allow for partial disability; most direct-income protection plans exclude this cover in their fine print.

Claims

In most cases, advised income-protection plans will have a peak payout of $30 000 monthly, however, direct income protection plans will offer much less. In most cases the claim amounts will be half that of advised income-protection plans. However, claims may be rejected. In 2016, up to 37% claims were rejected, of which 25% were for trauma cases.

Overall information before signing any contract

In some cases, with direct-income protection your application may be rejected if you do not fit neatly within all the boxes. However, when comparing this to advised income-protection plans, the difference is that a financial advisor may be able to find a more suitable cover plan if you have certain health issues.

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