Agreed Value vs Indemnity Value
Agreed Value and Indemnity Value are two different ways an Income Protection benefit can be structured.
Agreed Value establishes the insured benefit when the policy is taken out, while Indemnity Value generally assesses your income at the time of a claim to determine the benefit payable.
Agreed Value and Indemnity Value are often confused because both are types of Income Protection. The important difference is when your income is considered and how the benefit is established.
With an Agreed Value policy, the insurer assesses your income when you apply for the policy and agrees on the level of benefit that can be paid if you need to claim. This can provide greater certainty around the benefit amount because it has been established when the policy is taken out. It can be particularly relevant for people whose income fluctuates, such as business owners, self-employed people or those earning commissions or bonuses.
With an Indemnity Value policy, the benefit is generally based on your income at or immediately before the time you claim. If your income has changed since you took out the policy, the amount payable may therefore be different from the original level of cover, subject to the policy's terms and maximum benefit.
This doesn't mean one type is automatically better than the other. They are simply different ways of establishing an Income Protection benefit. The appropriate structure depends on factors such as your income, occupation, how your income is earned and the policy available to you.
It's also important to remember that regardless of whether a policy is Agreed Value or Indemnity Value, you must still meet the policy's definition of disability and other claim requirements before a benefit can be paid.
Why it matters
Understanding whether your Income Protection is Agreed Value or Indemnity Value can make a significant difference to your expectations at claim time.
The amount of cover shown on your policy doesn't necessarily tell the whole story - you also need to understand how that benefit is established and how your income is treated if you need to claim.
Common Misunderstandings
"Agreed Value and Indemnity Value are just two names for Income Protection."
No. They are two different ways an Income Protection benefit can be structured.
"Agreed Value means my claim is guaranteed."
No. You still need to meet the policy's definition of disability and all other claim requirements.
"Indemnity Value means I will always receive the full amount shown on my policy."
Not necessarily. Your income at the time of claim can be relevant to the benefit payable, subject to the policy's terms and limits.
"Agreed Value is always better than Indemnity Value."
Not necessarily. Each structure has different features and may suit different circumstances.
"My income doesn't matter once I have Income Protection."
Your income can remain relevant, particularly with Indemnity Value policies. It's important to understand the specific terms of your policy.
FAQs about Agreed and Indemnity Value
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Agreed Value establishes the insured benefit when the policy is taken out, following the insurer's assessment of your income and circumstances.
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Indemnity Value generally determines the benefit payable by considering your income at or immediately before a claim, subject to the policy's terms.
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Neither is automatically better. The appropriate structure depends on your circumstances, income, occupation and financial needs.
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Yes. Your income at or immediately before the claim can be used to determine the benefit payable, subject to the policy's conditions.
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Not necessarily. The exact requirements depend on the policy wording and insurer, so it's important to understand the terms of your specific policy.
Understanding how your Income Protection benefit is established can be just as important as understanding how much cover you have. If you're unsure whether your policy is Agreed Value or Indemnity Value, or you'd like to understand the difference between the two, talk to a New Vision Financial Services adviser. We'll explain the differences in plain English and help you understand how your cover is designed to work.