Enjoying a steady income is a significant aspect of our lives. It pays for our needs, wants, and helps us plan our future. However, circumstances may arise when we may not be able to work, such as during illnesses or accidents. During these critically challenging times, an income protection insurance can be a lifesaver.
Income Protection Insurance, sometimes also called disability income insurance, essentially provides you with a safety net if you’re unable to work due to illness or injury. The objective of this article is to help you understand the basics of income protection insurance and the pivotal role it plays in securing your financial wellbeing.
What Is Income Protection Insurance?
Income protection insurance is a type of insurance policy that pays policyholders a regular income when they can’t work because of illness or disability. It offers financial support and helps replace your regular income – usually up to a maximum of 75% of your gross salary – allowing you to continue paying your bills, meeting your daily needs and staying afloat financially until you can return to work.
How Does It Work?
In the event you are unable to work due to illness or injury, the income protection insurance will pay out after a predetermined waiting period, also known as a ‘deferred period’. This could range from 4 weeks to 52 weeks, and it mainly depends on what you’ve agreed upon with the insurer. It is important to consider this period when taking out the policy because the longer the waiting period, the lower the premiums you have to pay.
Once the waiting period is over, the policyholder starts to receive monthly tax-free payments. These payments continue until one of the following situations occurs: the person recovers and can return to work, the person reaches the decided retirement age, or alas, in the unfortunate event of the policyholder’s death.
Types Of Income Protection Insurance
Essentially, there are two types of income protection insurance – short-term and long-term. Short-term policies, often called Accident, Sickness and Unemployment (ASU) policies, usually only pay out for one or two years. Long-term protection, as the name suggests, can support you for several years, and may continue to do so until retirement if you’re unable to return to work.
Who Needs Income Protection Insurance?
Income protection insurance is beneficial to anyone who works, especially those with dependents. Whether you’re single or have a family, employed or self-employed, if you depend on your income to cover regular living expenses, income protection may be valuable to consider.
It’s crucial to note that if you’re self-employed or part of a small business, you may not have the same sick-pay benefits as those in full-time employment, making income protection insurance even more critical.
Conclusion:
While no one likes to think about the possibility of falling ill or suffering an injury that prevents them from working, it is an uncertainty that cannot be overlooked. Income protection insurance offers a robust financial lifeline in such trying times, making sure you can keep your lifestyle intact and your stress levels low about impending bills or debt.
Like any insurance policy, considering income protection insurance requires careful consideration of your individual needs, circumstances, and employment status. Consulting with a financial advisor or insurance specialist income protection insurance can provide further insight and help you understand whether this type of insurance is right for you. Remember, the best time to secure your income with insurance isn’t after something awful happens – it’s before.