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Key differences between advised and direct income protection


According to news.com.au, 95% of Australians do not have adequate income-protection cover (http://www.news.com.au/finance/money/face-up-to-income-protection-folly/news-story/cf947d42d33773f9d7c80f18ccbcc11e). 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 (https://www.safeworkaustralia.gov.au/workers-compensation). Those who had time off took an average of 2 weeks; and in serious cases took 9.2 weeks off from work https://www.iscrr.com.au/__data/assets/pdf_file/0020/540830/118_Work-injury-in-Australia-Review-2004-2014.pdf). 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 (http://www.lifewise.org.au/see-more-statistics), 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 (http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-347mr-asic-issues-industry-review-of-life-insurance-claims/).

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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