Here is a really scary picture: imagine not being able to perform in your own occupation due to sickness, disability, or mental illness. Imagine not being able to put food on the table, or pay your mortgage and household bills. For all of us, this certainly is beyond imagination and I will stop there. While there are many ways of coping with financial difficulty, one of the ways of protecting yourself from the risk of not being able to work is by taking out income protection insurance.
What Is Income Protection Insurance?
Also referred to as permanent health insurance, income protection insurance is an insurance policy that covers policyholders in the event of an accident and inability to work. Long-term income protection insurance pays out until your return to work, retire or decease. However,there are also short-term policies that are available at a lower cost.
Income Protection Insurance Options
Different insurance companies provide a variety of individual options, tailored to meet specific needs. But all of them fall under three options:
1. Agreed value or indemnity policy – With an indemnity value income protection, policyholders are insured for what they say they earn, but when they go to put a claim they have to verify their income. If the policyholder’s income has reduced, his/her claim is paid on the reduced amount.
With agreed-value income protection, individuals prove their income at the time of underwriting and insure to receive a definite amount. The main advantage of this plan is that policyholders know how much they will receive, even if there is a decrease in their income. However, these types of policies have higher premiums than those of indemnity contracts.
2. Benefit period – how long a policyholder will receive benefits in the event of a valid claim.
3. Waiting period – the period of time that the insured chooses to wait before starting to receive benefits.
Other factors that may affect the cost of premiums include:
– Whether or not an applicant smokes
– Minimum requirements
– Any extras chosen
Who Should Take Out Income Protection Insurance?
Income protection insurance is designed to provide protection to anyone who supports themselves through the income they earn from their occupation. While you may tend to think that only those who are involved in risky occupations and hobbies, accidents and serious illnesses can happen to anybody at any time. Whether you are a lawyer, doctor or a handyman, having income protection insurance can help make a very difficult situation less worrisome.
Pros of Income Protection Insurance
There are a number of advantages that are associated with having an income protection insurance.
– First, this policy provides you with broader coverage, including if you become incapacitated due to a non-work related illness – which is not covered under worker’s compensation insurance. Although a life policy can be very handy in helping your loved ones pay off your debts and meet their ongoing expenses in the event of your death, it usually doesn’t offer benefits if you are temporarily unable to work due to an injury or illness.
– Income protection insurance can help you to pay your bills and cover your mortgage, and it goes as high as 75% of your income. This certainly offers a peace of mind, since you can protect your family and reduce the stress that comes with losing income earning ability.
– Also, income protection insurance is tax deductible, which can really be of importance in critical times.
Cons of Income Protection Insurance
Of course, nothing comes perfect. IPI pays out only in the event a policyholder becomes unemployed because of an accident or illness. This means that you’ll not receive payments if you are made redundant.
Although many people are hesitant about this type of insurance, one must admit it does offer a great way to protect your most important asset – ability to earn an income. Once you get this type of policy, you will have a more extensive coverage than you can get from a live cover or your employer’s worker’s compensation policy. This will comprehensively safeguard your financial future as well as that of your family.