Income protection is a part of your life insurance policy that will give you peace of mind if you suddenly find yourself unavailable to work. Of course, this does not mean that if you decide to take a trip to the Netherlands you will get a check to cover your income. The payout can only be claimed if it falls under the contract guidelines.
Wikipedia defines it as being a policy that will pay out a set amount of money for a specified time if you are unable to work due to an illness or injury. If you must file a claim the payment amount will be set by a formula calculated off your past twelve months of income. Some policies will pay out up to 85% of the average amount of your income.
DO YOU NEED INCOME PROTECTION INSURANCE?
Very few people actually carry this type of insurance for one simple reason. Many people do not think that they will ever become sick enough, or injured enough, to not be able to work. You should expect the unexpected and be prepared for things that may come along. Never take your job for granted. If you have medical coverage, and life insurance policies through your work, you can bet that you will be all right for a brief time. Most employment benefits are not even close to what you may need if something should happen to you.
Some questions that you may want to ask yourself are:
- Am I self-employed?
- Am I a business owner?
- Do you have family members that rely in your income to survive?
- Do you have debts that need to be paid no matter what? Such as a mortgage or car payment.
If you answered yes to any of these questions you definitely need to get an income protection insurance policy. Even if you answered no to them all, it is still a good idea to get one. You do not want to have to go through your entire savings just to pay off the bills while you are unable to work.
CHOOSING A POLICY
Once you realize that you need income protection you will have to deal with choosing the correct policy. The first thing that you need to do is sit down and do a budget. This will tell you how much money you need every month to pay your debts, and to survive.
You will then have to decide the type of policy that you want. Luckily, due to a change in laws back in 2020, you only have one option. The agreed value policy is no longer available for new policy holders, but if you had this type of policy before you can continue with it. You will not be able to ever renew this type, though. The agreed value was coverage that would give you an agreed upon amount, but the premium was generally high. The indemnity policy, which is the only one that you can purchase now, is based off your income for the past twelve months. The premiums are less than the previous one, but if your income goes down before you must file a claim you could see a much smaller monthly check than what you need.
There is always a waiting period when you first purchase a policy. Some will kick in after a few weeks, while some may not be active for a few years. This period of time is the length of time that you will be out of work, so you need to know how much time you can cover before you need the policy to kick in.
There will also be two ways that you can pay for your coverage. Stepped premiums can start out with a low premium, but they are re-calculated every year. The cost will go up because of your age, and because of any medical issues that you may be dealing with from year to year. The level premium will only go up slightly when your policy renews, usually due to inflation. This policy will have a higher premium than a steeped one, but it will stay fairly close to the same premium amount each year.
Getting an income protection insurance policy can be a blessing if something ever should happen to you. It will ensure that your family is taken care of. It will also help prevent you from losing everything that you have worked so hard to get. As mentioned above, you never know what could happen. Life happens at its own pace, and things can be thrown in that you do not understand.
This policy will give you the confidence to strive ahead in life. It will give you the knowledge that your family will be taken care of. It will allow you to take your time off to heal and rehabilitate. If you get injured, or be struck by an illness, you do not need financial stress piled on top of it.
There is a common saying that it is better to have it and not need it, then to not have it and need it. This is so true if you think about it. It may cost you some money for the premium, but it is a small price to pay if you ever need some financial help during your down time. Trying to survive in the world today can be hard enough. Insurance coverage such as these are designed to hep you when you are in need.
Bottom line is this. Whether you get a policy or not is entirely up to you. No one can tell you that you must get it. Nobody can tell you not to. If you plan to work as long as you possibly can, until you retire, you may not ever need coverage other that what your employer offers you. It would truly be a shame though, to lose everything that you have spent your life obtaining.