Protecting your income

Income Protection

Income protection insurance, also known as disability income insurance or permanent health insurance, is a type of insurance policy that provides a regular income if the insured person becomes unable to work due to an illness, injury, or disability. It is designed to replace a portion of the insured person’s lost income and provide financial stability during a period of inability to work.

Here are some key aspects of income protection insurance:

Purpose:

The primary purpose of income protection insurance is to provide a source of income when the insured person is unable to work due to a covered illness, injury, or disability. It ensures that regular payments are received, typically on a monthly basis, to help cover living expenses and maintain financial stability during the period of inability to work.

Benefit Amount:

Income protection insurance policies typically provide a percentage of the insured person’s pre-disability income as the benefit amount. The exact percentage can vary, but it is commonly around 50-70% of the insured person’s gross income. It’s important to consider the benefit amount and ensure it is sufficient to cover ongoing expenses and maintain a reasonable standard of living.

Waiting Period:

Income protection insurance policies have a waiting period, also known as an elimination period or deferred period. This is the period of time that must pass from the start of the disability until the insured person becomes eligible to start receiving benefits. Waiting periods can range from a few weeks to several months. The longer the waiting period, the lower the premium is likely to be.

Benefit Period:

Income protection insurance policies also specify a benefit period, which is the length of time the policy will pay out benefits if the insured person remains disabled and unable to work. Benefit periods can vary, but they commonly range from a few years to until retirement age. It’s important to consider the desired benefit period and choose a policy that aligns with your needs and financial circumstances.

Definition of Disability:

Income protection insurance policies define disability based on the policy terms and conditions. There are typically two types of definitions:
Own Occupation: The policy pays out benefits if the insured person is unable to perform the duties of their own occupation. This provides a higher level of coverage as it takes into account the insured person’s specific occupation and skills.

Any Occupation: The policy pays out benefits if the insured person is unable to perform any occupation for which they are reasonably suited based on their education, training, or experience. This definition provides less coverage as it considers a broader range of occupations.

Premiums:

Policyholders pay regular premiums to maintain the income protection insurance coverage. The premium amount is determined based on various factors, including the insured person’s age, occupation, health condition, benefit amount, waiting period, benefit period, and any additional policy features. Premiums can be paid monthly, annually, or in other agreed-upon intervals.

Exclusions and Limitations:

Income protection insurance policies may have certain exclusions and limitations. These can include pre-existing conditions, self-inflicted injuries, or disabilities resulting from certain high-risk activities. It’s important to review the policy terms and conditions to understand the coverage limitations and any exclusions that may apply.

Income protection insurance can provide valuable financial protection in the event of a disability or inability to work. It’s important to carefully assess your needs, review policy terms and conditions, and seek guidance from insurance professionals or financial advisers to determine the most suitable income protection insurance coverage for you and your specific circumstances.

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