Every year millions of people find themselves unable to work because of acquiring serious illnesses or injuries. Income protection is designed to provide you with some cover if you cannot earn an income due to those reasons. If in case something happened to you and cannot survive on savings or sick pay from work, income protection is something that you should be thinking of in order to keep paying the bills.


Some benefits of income protection

  • It replaces part of your income.
  • It pays out until you are able to go back to work or until you retire, die or when the policy term ends, whichever will come first.
  • Most of the time there’s a waiting period before the payment begins.
  • It covers almost all illnesses that leave you unable to work either in long or short term.
  • You can claim as many times as you are required to while the policy lasts.


Do I need it?

It does not matter whether or not you have dependents of children, if an illness will prevent you from paying your bills, you should think about considering getting an income protection insurance. You would most likely need it if you are self-employed or employed and your company does not have a sick pay policy that you can fall back on.


Who does not need it?

You may not need an income protection insurance if:

  • You are an individual who can get by on sick pay. For example, if your company provides an employee benefits package which gives pay for about 12 months or more.
  • You can survive on government benefits that can cover all your expenses. There are times though that it may not be enough to cover all your expenses.
  • You have enough savings to support yourself. Remember that your savings can run out and it may need to see you through a long period of time.
  • If you could take an early retirement. If you are near retirement age, maybe you could afford to an early retirement. If you are not able to return to work, you might be entitled to claim your pension early as well.
  • Your family or partner would support you. If your partner or spouse is generating enough income for the two of you and can cover all your monthly outgoings.


How much does income protection insurance cost?

How much you need each month for your premium will depend on the policy you will choose and your circumstances. Normally, an income protection insurance covers a wide array of illnesses and situations and has the potential to pay-out for numerous years. The cost of the policy will depend based on a variety of factors which will include the following:

  • Age
  • Job
  • Whether you smoke or have smoked before.
  • The percentage of your income you’d like to be covered.
  • The policy’s waiting period before it pays out.
  • The range of injuries and illnesses it covers.
  • Your current health condition as well as weight and your family’s medical history.


About income protection insurance

Income protection insurance can provide you with coverage if you are not able to work. With this insurance you are usually protected against sickness and accident only, unemployment only and the more all-inclusive accident, sickness and unemployment cover. Your gross salary of up to 70% will be protected and it is designed in a way to substitute your income as well as pay out a tax-free monthly sum, which you can use to help in easing out any hardship financially while you are incapable to work.


Should I consider taking out income protection?

Income protection is a product that is useful for individuals who want to cover their income or salary so that they will not fall behind with monthly expenses if in case they be unable to work. People who consider it usually include those who are struggling to make ends meet if they no arriving salary, if they are self-employed and if they have dependents.



How long does the term of the policy usually last?

Most insurance providers will usually cover you up to your retirement age and generally the maximum age accepted as retirement age is 70. There are people though that choose a set period of time instead of looking at retirement because it is often linked to the expected repayment date of a mortgage or other finance agreement. Also you are not usually tied to the policy during that period, but the protection will remain in force as long as you are continuously meeting your premium payments.


How long is the benefit term?

The longer you want the policy to have the delivery of the pay-out or benefit term, the more the premium is likely to cost. Short-term income protection policy is designed to give you with payouts if you are unable to work for a set period of time, normally between 6 to 12 months. On the other hand, Long-tern income protection insurance can give you a cover if you became really ill and you will not be able to work again.


How about the benefit amount?

The amount of cover you need will be dependent on your situations and it is important not underestimate or overestimate the amount. Usually the maximum amount you can get through income protection is about 70% of your gross monthly earnings and the payout is typically tax free. You also have a choice to insure a lower percentage than that if you want your premiums to be lower.


What are the types of policies?

  • Guaranteed policy – premium you pay stays the same for the duration of the policy term.
  • Reviewable policy – reviewed by your provider at regular intervals, most of the time annually, which tends to increase your premium every year.
  • Age-related policy – your premium will increase each year in line with your age but you will know how much.


Will gender affect my premium?

Before gender plays a major role as women tend to pay more because they are more at risk to illnesses like breast cancer and other pregnancy-related illness, but a law was passed to make it illegal use gender as a basis in determining premiums.


Income protection insurance will provide you with an income if you will not be able to work because of injury or illness which are long term. The kind of income protection insurance you choose will be the determining factor of the premiums payable so it is essential that you understand the differences and advantages of each type. Below are the most common types of income protection insurance:


Indemnity value income protection insurance

Indemnity value income protection is the cheapest form of this type of insurance. The reason for this is because the individual insured and not the insurer assumes the risk of instability in income. The monthly pay-out insured under the indemnity value income protection will be lesser of 75% of insured pre-disability income or the amount insured every month as shown in the policy.


This type of policy will need financial checks during the time of the claim and your benefit will be based on pre-disability earnings if the claim is successful. For example, 75% of income earned in 12 months before the claim. This could possibly result in a lesser benefit pay-out if you just recently earned less than at the beginning of the policy.


Insurers have their own definition of pre-disability earnings. But normally it is measured as income earned over the last 12 months or the best 12 months over a specified period.


Agreed value income protection insurance

This type of income protection is the more expensive one due to the fact that the insurer in this case accepts the risk of reduction in the insured individual’s income after the policy’s issuance.

An agreed value income protection insurance guarantees that the whole benefit amount is paid in case the claim is successful whether it is reflected in your income during the time of the claim or not. You can provide your proof of pre-application income either before or after your policy begins. But if you were not able to produce any proof of pre-application income before or during the time of your claim, your monthly pay-out amount may be reduced.


Basically, the agreed value income protection policy normally offers the monthly benefit guaranteed upfront at application process. Because of this reason, you are not required to provide financial proof during the time of claim in order to verify the monthly benefit. This results in a quicker administration of claim for eliminating one of the key steps in the process when you are on a stressful time of being ill or injured.

Which is the ideal income protection policy for you?

Before making any decisions make sure to consider all the benefits for each type of policy. Do your research and compare the terms and conditions for each policy offered by the company or companies you are considering. Make sure that whatever you choose, whether an agreed value or indemnity value policy, it will best suit your situation and will reflect your employment status and take into consideration whether you are planning to change careers in the near future as well.