Protection insurance, formerly known as permanent health insurance, is a policy that pays out if you cannot work because of injury or illness. The insurance pays you a regular income until you retire, die, or you return to work. However, the income you can claim does not replace the exact amount you were earning before you stopped working. You will receive about half to two-thirds of your earnings before tax from your job. Some money will be taken off the state benefits you can claim, and the income you get from the policy is tax-free. Read on to discover what income protection insurance is right for you.
- The Waiting Period. This is the time that the insured must be disabled before you become eligible to claim a benefit. The policy premium reduces as the waiting period increases. The best thing to consider when determining the length of the waiting period is your ability to self-insure and manage your cash flow for an extended time. However, you can access the advanced income protection option, which is a benefit that pays during the waiting period.
- The Percentage of Income Insured. The best income protection policies allow insurance of a monthly benefit of up to 75% of income. The higher your monthly benefit, the higher the premium. As a client, you can have several income protection policies to manage the short and long-term financial implications of a disability. If you can manage with a lower replacement level of income in the short term, you can consider having one income protection policy covering a two-year benefit period.
- Agreed value or Indemnity Monthly Benefit. An agreed value policy provides certainty should your income fall. The policy pays you a total monthly benefit if you become disabled. An indemnity policy pays you less the monthly benefit and 75% of income in the last 12 months. The primary thing to consider here is the stability of your income and the likelihood of your income falling in the future. Your employment status is a driving factor to income stability. If you are self-employed, you may be more concerned that your salary may fluctuate. As such, an agreed value policy may work best for you. For employed people, an indemnity policy may be a more appropriate and excellent way to save money. If you wish to consider the indemnity police, ensure you look at your current and future income stability.
- Exclusion. Income protection policies do not always cover all types of illness. Also, you may not be covered for illnesses that either you or a member of your family has had before. An insurer will always look at your family’s medical history. Some insurers will cover existing medical conditions while others will not. You can ask your insurer whether there will be conditions attached to you taking out the policy. You should also check whether your policy allows you to claim if you can still do some other kinds of work than your job.
When considering income insurance, it is advisable to seek professional advice. Look at your needs, circumstances and directly deal with your insurer. Avoid brokers who may give you half-baked information.