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Difference between Agreed Value and Indemnity Value


Most people who plan to buy income protection insurance are not aware that there are two types of contracts offered to buyers. Although each type of contract has its own benefit, the common benefit is that policy holders get regular payouts after he files a claim.


Agreed Value Contract

The first type of contract that is offered to buyers is an agreed value contract. People who opt for this type of contract have to submit their financial documents when they sign up. After filing a claim the policy holder receives a fixed payment every month from the insurance company. The main benefit of this type of contract is that the amount received after filing a claim is decided when the financial documents are submitted hence this amount doesn’t change even if the buyer’s income reduces significantly when he files a claim.


Indemnity Value Contract

The second type of contract that is offered to buyers is an indemnity value contract. People who are looking for cheap policies usually opt for this type of contract since indemnity value contracts have certain limitations. The biggest disadvantage of an indemnity value contract is that if the buyer’s earnings reduce at the time of filing a claim then the buyer will receive a lower payout. The amount received by the buyer is decided by the insurance company when he submits his financial records while filing a claim.


Things To Consider

Both these types of contracts are offered by all the insurance companies in Australia. Usually cheap income protection policies are indemnity value contracts where as customizable policies are value agreement contracts. Buyers also have the option to choose between cancellable contracts and non cancellable contracts. Non cancellable contracts allow policy holder to renew the selected contract without the interference of the insurance company at the time of renewal where as in the case of cancellable contracts, the insurance company has every right to decline the renewal application form if they feel that the policy holder has moved to a high risk category or if they have filed a claim for compensation in the past.

Buyers should remember that although they can save a few dollars by opting for an indemnity contract, they should keep in mind that income protection insurance policies are supposed to help them when they cannot work hence buyers are encouraged to consider financial obligations and their personal financial state before deciding which type of contract they want to opt for.


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