inconvenient times, and you may be unable to earn your living like you normally would for an extended period. It is important to be financially prepared for such events, particularly if you depend on your paycheck at the end of every month to provide for your family and maintain your lifestyle.
Income protection (IP) insurance, or salary continuance, could cover up to 75 percent or more of your salary for a given period. It is worth noting that this type of insurance covers against anything that stops you from working – it is not limited to illness and injury alone. You will continue to receive the stipulated amount of your income until you return to work or at the end of the benefit period. The benefit period refers to the period during which you will be receiving insurance benefits, and this could range from 6 months to 2 years or longer.
Considerations for premium charges
The premiums paid for income protection insurance are based on several factors, including your age, gender, the state of your health and participation in hazardous activities. Individuals working in “special risk” occupations can still receive income protection insurance, but the amount they receive on a monthly basis is lower when compared to other occupations.
The amount you will pay will also be influenced by the waiting period; this is the amount of time you choose to wait before you start to receive your insurance benefits. Lower premiums are charged for longer waiting periods, while higher premiums are charged for longer benefit periods. The benefit amount may be based on the amount you earn prior to the disability (indemnity policy) or an amount you choose when getting the policy (agreed value policy).
Once you start receiving your IP insurance benefits, you are no longer required to pay premiums on the income protection policy until you resume work or at the end of your benefit period. However, you will need to make payments during the waiting period, but these will be refunded once you start receiving your insurance benefits.
Choosing a policy
When choosing an income protection policy, it is important to ensure that you will be adequately covered should your ability to work be impeded. For instance, different policies have different definitions for disability. Certain policies only pay out if you are unable to work in any type of occupation, regardless of the occupation you were in when you became disabled. As such, you may not receive benefits if you still have the ability to work in any other type of job. A more suitable definition is that for an own occupation policy, which describes disability as the inability to work in your own occupation.
You should also check the exclusions provided in an income protection plan before purchasing the policy. For instance, if you have a history of mental health problems, check that the policy does not exclude mental illness from coverage. A non-cancellable policy is also recommended, as it ensures the insurance company will not reassess your health when renewing the policy, which could result in raised premiums or refusal to continue cover.
An obvious indication that you need an income safety net is if you would be unable to support your family if you were injured and needed to take several months off work. With income protection insurance, you get a steady source of cash if you are unable to work, allowing you to focus on getting better.