Matt applies for an income protection policy which has an indemnity value. In his application hereports that his previous year’s salary was $80,000 p.a. His application is approved and he accepts apolicy with a maximum insurance benefit of $5,000 per month. Matt falls ill and is unable to maintainhis work. He is forced to reduce his working hours and as a result his income falls to an average of$70,000 over the year. Eventually, he needs to stop working at which point he makes a claim for aninsurance payout. On what level of income will his claim benefit be calculated and how much will thebenefit be per month
Question
Matt applies for an income protection policy which has an indemnity value. In his application hereports that his previous year’s salary was 5,000 per month. Matt falls ill and is unable to maintainhis work. He is forced to reduce his working hours and as a result his income falls to an average of$70,000 over the year. Eventually, he needs to stop working at which point he makes a claim for aninsurance payout. On what level of income will his claim benefit be calculated and how much will thebenefit be per month
Solution
The claim benefit for an income protection policy with indemnity value is typically calculated based on the insured's income at the time of claim, not the income at the time of policy inception. In Matt's case, his income at the time of claim is $70,000 per year.
To calculate the monthly benefit, we first need to convert the annual income to a monthly figure.
5,833.33 per month.
However, the policy has a maximum insurance benefit of 5,833.33, he will only receive the maximum benefit amount stated in the policy, which is $5,000 per month.
Similar Questions
Consider an insurance company that offers a standard contract with the premium r=$300 and payout q=$500 to anyone who will purchase it. Alice has healthy-state income I_H=$700 and sick-state income I_S=$0. He has probability of illness p=0.6.Answer the following questions.If Alice purchases the insurance and stays healthy, her income will be $[C].If Alice purchases the insurance and ends up getting sick, her final income will be $[D].For Alice, the standard insurance contract is [E] (choose either fair or unfair) and [F] (choose either full or partial).
Which type of insurance pays benefits to individuals who lose their ability to work due to injury or illness?Supplementary Income insuranceImpairment Income insuranceMedicaidDisability Income insurance
Natalie is 49 years of age. She earns $25,000 p.a. in her casual job. She is looking to provide financialsecurity for her family. The premium for her desired level of income protection cover is $1,000 permonth. Explain how she could acquire this insurance within her super fund and the benefits of doing so.
Fill in the Blank QuestionFill in the blank question.When considering life insurance, you should consider present and sources of income.
Multiple Choice QuestionIf current income is $50,000, then what is the amount of life insurance coverage needed using the easy method?Multiple choice question.$295,000$195,000$245,000$350,000
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.