A quick guide to income protection insurance

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Published: Wed 14 Dec 2022, 3:14 PM

Most of us would face major financial difficulties if we were unable to work due to medical reasons. What plans do you and your loved ones have in place in the event that you get sick or injured and are unable to work? How would you pay your overdue debts, such as rent, mortgage, or other living expenses?

By Ayush

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Income protection insurance may provide you with the ease and comfort you deserve. A loss of income could really hurt a family's finances and way of life. Income protection insurance is made for people who want to protect themselves against this by paying out a set amount every month. Visit Quote Radar to get more information about insurance.

Income protection insurance:

If you are unable to work due to sickness or an accident, income protection insurance may help you continue making a portion of your regular monthly income. It provides a tax-free monthly payout and continues to do so until you are well enough to return to work, your insurance expires, or you retire.

Income protection insurance is meant to help you and your family pay for regular expenses and keep up your standard of living if something bad and unexpected happens. Income protection insurance should not be confused with unemployment or redundancy insurance, which are entirely different types of coverage.

How income protection insurance works?

  • Offers monthly payments that replace a portion of lost earnings in the event of sickness or injury.
  • Paysout until you can go back to work, retire, die, or reach the end of the policy term, whichever comes first. Usually, between 65 per cent and 75 per cent of your income is paid out if you can't work.
  • Covers most illnesses that keep you from working for a short or long time.
  • You can make a claim as many times as you need to as long as the policy is in effect.

Before payments start, there is often an agreed-upon waiting (or deferred) period. There are typically four-week, 13-week, 26-week, and 12-month wait times. The longer you wait, the less expensive your monthly premiums will be.

Income protection insurance coverages:

Your coverage depends on the kind of income protection insurance policy you choose. The length of time you are insured for (the policy's term) also relies on the policy you choose and the insurance company you go with.

Short-term income protection: In the event that you are temporarily unable to work due to an accident, illness, or unemployment (for example, if you break your leg or are laid off), short-term income insurance may be an option for you. The normal duration of an insurance policy is one to two years.

Long-term income protection: It protects you against accident and illness in the event that you become extremely ill or permanently disabled. It won't pay for unemployed people. Long-term income protection insurance may help you maintain your current standard of living if you become disabled and are unable to return to work. This coverage typically lasts until retirement age or the policy expires, whichever comes first. For specifics, it's best to get in touch with your service's supplier.

Who doesn’t need to have income protection insurance?

If you fall under any of these categories, then you may not require income protection insurance:

  • You could get by on sick pay – If you have an employment benefits package that provides income for a year or longer.
  • You could get by on government benefits – If they are enough to cover all your expenses.
  • You can support yourself with your savings – It's important to remember that your money may have to last a very long period.
  • You may take an early retirement.
  • Your partner or family would help you – For instance, your partner makes enough money to cover all of your needs.

Income protection insurance Cost:

The monthly premium you pay is determined on the kind of policy you have and your personal situation. Many different diseases, disorders, and life circumstances are covered by income protection insurance. That's why it's crucial that you look into the policies of various providers. Factors that affect the price include:

  • Your age
  • Health — your present health, weight, and family medical history health
  • Your occupation
  • Whether you smoke or have smoked
  • The proportion of income you'd want to cover
  • The waiting (or 'delayed') time until the insurance pays out.

The price will also change depending on whether you pay by:

1. A regular premium, which the insurer may raise over time

2. A guaranteed premium, which stays constant for the duration of the policy.

The upfront cost of guaranteed premiums may be higher, but many consumers value the peace of mind that comes with knowing exactly what their monthly payments would be.

— Ayush is the content strategist at Tedfuel

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