All About Income Protection Insurance & Why You Should Have It
These days, it seems like there’s an insurance policy for everything. Some of these insurance policies aren’t vital, but that’s not the case for income protection.
Unlike car or homeowner’s insurance, income protection isn’t as well-known. But that doesn’t mean it’s not important, especially in this economic climate. In fact, protecting your income is one of the best ways to ensure financial stability for the future.
In this complete guide, we’ll cover everything there is to know about income protection insurance, including why it’s important, who can benefit, the types of policies to choose from, and more.
What Is Income Protection Insurance?
Before signing up for a policy, it’s important to understand what income protection insurance actually is and how it can benefit you. Luckily, it’s a simple concept to grasp; this type of insurance is meant to protect your income if you are unable to work due to illness or injury.
If you’re covered by this type of policy, you will be provided with a portion of your income regardless of your inability to work. In most cases, this policy pays a monthly income benefit equivalent to 70-75% of your gross income.
Although you won’t be receiving the full amount of your regular income, this form of insurance allows you to stay on your feet and continue to pay your rent or mortgage, utility bills, and other living expenses while you’re out of work. That means you can focus on getting healthy without too much financial stress.
Types of Income Protection Insurance Explained
Income protection comes in many forms and it can go by many names, like personal accident insurance, sickness and accident insurance, or worker insurance.
Regardless of the name, the purpose of any income protection policy remains the same – to protect your income when you’re unable to earn it yourself. However, every policy is different depending on the specific terms and conditions of your insurance provider.
The exact terms depend on the policy you’ve signed up for. Policies vary in terms of coverage (the percentage of your income that is provided), waiting time (the amount of time you have to wait for benefits to begin), and benefit timeframe (the total amount of time benefits are paid out).
Because there are so many variables involved in choosing an income protection policy, it’s extremely important to read the specific terms and conditions. Not everyone is well-versed in this type of legal jargon, so you might want to consider hiring a financial planning expert to alleviate the process.
What Does Income Protection Insurance Typically Cover?
Every insurance policy is different, but there are specific coverages to look for that the majority of policies include. In most cases, income protection covers up to 90% of your pre-taxed income for the first 6 months of your disability.
After 6 months, the coverage usually drops to 70% or less of your pre-taxed income for a specified amount of time. Keep in mind that some forms of disabilities aren’t covered, especially minor injuries that aren’t considered severe enough to prevent you from working.
Who Can Benefit?
No matter who you are, you can benefit from protecting your income. Even if you don’t cash in on the policy, it’s beneficial to know that your income is protected if you ever become ill or injured.
Anyone who works in a high-risk occupation can seriously benefit from income protection. Trade jobs like electricians and plumbers are sometimes required to obtain this type of insurance, but it depends on the employer.
You might not see the importance of income protection if you work in a non-threatening work environment. But even if you have a desk job, protecting your livelihood is essential, and investing in this type of insurance is the best way to do that.
Tips for Finding the Right Policy
The key to finding the right income protection insurance policy is to choose one based on your work environment and specific coverage needs. You can do so by asking yourself these questions:
- What additional benefits does the policy offer? This can include rehabilitation support, childcare benefits, and more.
- Is the policy tax deductible?
- How long do you have to wait until benefits are paid out?
- What is the coverage period?
- Are there any restrictions or exclusions listed by the provided? This can include smoking, alcohol use, etc.
At Sterling Grange Financial Planning, our mission is to help you plan for the future, and that includes protecting your income. Our financial planning experts can guide you through the process of choosing a policy that’s right for you, so get in touch today for more info!
