Income Protection Insurance is a type of insurance that helps you if you can’t work because you’re sick or injured. It is a financial product designed to provide a source of income if an individual becomes unable to work due to illness, injury, or disability. It is a type of insurance policy that offers financial security by replacing a portion of the policyholder’s lost income when they are unable to work for an extended period. Income protection insurance is a must-have for anyone who wants to be financially secure.
Here’s how it usually works:
Premiums: You pay money to the insurance company regularly. How much you pay depends on your age, health, job, and how much coverage you want.
Coverage Period: You decide how long you want the insurance to last, like a few years or until you retire. More extended coverage means higher payments.
Waiting Period: There’s a waiting period before they start paying you. During this time, you have to be too sick or injured to work. The waiting time can be a few days to a few months.
Benefit Amount: If you meet their criteria for being sick or hurt during the waiting period, they start giving you money each month. It’s usually around 50% to 70% of your regular income.
Disability Definition: They might define “disability” differently. Some say you can’t do your exact job, while others say you can’t do any job you’re suited for. It depends on the policy.
Taxation: The money they give you is often tax-free if you paid your premiums with money you already paid tax on. But tax rules can be different in different places, so ask a tax expert.
This kind of insurance is helpful if you rely on your income to pay your bills and take care of your family. It gives you peace of mind if you can’t work because of illness or injury. Before getting this insurance, read the terms, see how much they’ll pay, and how long you’ll have to wait. Policies can be different, so compare and get advice if needed to make the right choice for you.
This kind of insurance is helpful if you rely on your income to pay your bills and take care of your family. It gives you peace of mind if you can’t work because of illness or injury. Before getting this insurance, read the terms, see how much they’ll pay, and how long you’ll have to wait. Policies can be different, so compare and get advice if needed to make the right choice for you.
How Does Income Protection Insurance Work?
Imagine you’re a builder, and you had an accident that stopped you from working for a while. Instead of stressing about paying your bills, your income insurance steps in. It gives you some money, like a part of your regular income, until you can work again. This help can last for different times, depending on your insurance, maybe even until you retire.
What does the monthly benefit cover?
The monthly benefit from your insurance can help pay for many things you need:
Food: It helps with buying groceries and meals.
Gas: It can cover the cost of fuel for your car.
Education fees: If you have school expenses, like tuition, it can help with that.
Credit card debt: It can be used to pay off money you owe on your credit card.
Mortgage payments: If you have a house and a mortgage, it can help with those payments.
Everyday bills: It can also cover your regular monthly bills, like utilities.
So, the monthly benefit is like money to help you with everyday stuff and important bills. They can even pay medical expenses if you have them.
Eligibility Criteria
To get benefits from income protection insurance, you must be unable to work because of illness or injury. You won’t qualify if you can’t work for any other reason. You also won’t get compensation if your incapacity happened because you were drunk or on drugs. If it resulted from a criminal act, during a war, or due to pregnancy. The cost of income protection insurance varies based on different factors. Here’s what can affect how much you pay:
- Your age: Younger people generally pay less.
- Your job: Some jobs are riskier, so they may cost more to insure.
- Smoking: If you smoke or are used to smoking, it can increase the cost.
- How much income you want to cover: The more you want to protect, the higher the cost.
- Waiting period: If you can wait longer before the policy starts paying, it might cost less.
- What the policy covers: Policies can cover many different health issues, and the more they cover, the more they may cost.
- Your health: Your current health, weight, and your family’s medical history can affect the cost.
You can choose to pay:
- Standard premiums: These can go up over time.
- Guaranteed premiums: They stay the same as long as you have the policy. They might cost a bit more initially, but some people like knowing what they’ll pay in the future.
How do I buy income protection insurance?
To buy income protection insurance:
Best income protection policy: Different insurance companies have different prices and rules. So, it’s a good idea to compare your options.
Get Expert Help: You can also talk to a financial adviser or a broker who specializes in insurance. They can explain all the policies to you and help you choose the right one. They might charge a fee or get paid by the insurance companies.
Special Cases: If you’ve been turned down for insurance because of a health problem or your job. There are special brokers and insurers who can help in those situations.
So, compare, get advice if you need it, and find the insurance that’s best for you.
Here are some important things to think about when you’re buying income protection insurance:
Honesty Counts: When you apply for insurance, be completely honest about your medical history. If you’re not truthful or leave out information, it could lead to problems when you make a claim. The insurer will check your history, so honesty is essential.
Choose the Right Level: There are three main levels of coverage you can pick from:
“Own occupation”: This is the most expensive but covers you if you can’t do your specific job.
“Suited occupation”: It’s a bit cheaper and covers you if you can’t do your job or a similar one that fits your skills.
“Any occupation”: This is the cheapest but covers you only if you can’t work at all. It’s riskier because it might not pay out as often.
Read Carefully: Take your time reading the insurance application. Understand what’s covered and what’s not. Different insurance companies have different rules, so if something is unclear, ask questions.
30-Day Grace: After you buy the policy, you have 30 days to change your mind and get all your money back.
Keep It Updated: Life changes, so check your policy now and then. You might need more coverage if your circumstances change, like having a child or getting a new mortgage. On the other hand, if you get a job with better sick pay, you might be able to reduce your coverage.
Insurance companies consider different types of income depending on whether you’re an employed worker or self-employed:
For Employed Workers:
They look at the money you earned before taxes, which includes your salary, fees, and any extras your employer provides.
They also consider any contributions your employer makes to your retirement plan.
Plus, any extra earnings like commissions or bonuses from your job.
For Self-Employed Workers, Contractors, and Partners:
They focus on the money you made from your own work, minus the expenses you had during the previous year.
When you make a claim, they’ll check your income and ask for financial documents. If your income changed since you got the insurance, your benefit (the amount they give you) will change to match your new income.
There are different types of insurance policies, but one called “indemnity” is usually cheaper. It’s a good option if you have a stable job with regular pay increases and benefits.
Best income protection insurance companies in the United States (By Forbes)
| Company Name | Coverage Area | Plan Types They Offer |
| Unum | Offers plans in 49 states | Short-term, long-term, individual, supplemental. |
| Guardian | Offers plans in all 50 states | Short-term, long-term, individual, supplemental |
| Assurity | Offers plans in 40 states | Short-term, long-term, individual, supplemental |
| Northwestern Mutual | Not specified | |
| Mutual of Omaha | Offers plans in 48 states |
Waqar Hussain is the founder of The Business Goals. He writes about entrepreneurial strategies and is an SEO consultant by profession. He is a B.Com, GDM, and an MBA from the Australian Institute of Business.
