Income Protection Insurance

Income Protection Insurance

Very few of us are wealthy enough to cope without the security of our weekly or monthly pay check so imagine the hardship you or your family would face if if you were suddenly laid off or illness prevented you from working. Without cash in the bank or income protection insurance life could get very difficult very quickly.

Losing your source of income is a challenge to any sane person, and truly frightening too. In the modern age we don’t have the comfort of knowing we can hunt for food, or that our shelter can be found in a cave, instead we live in towns and cities and even if we own our house, we still need to spend money. Money requires income, so protection insurance becomes very important if we want to maintain our lifestyle.

It’s true that most developed nations have some sort of social security system in place, but of course it tends to be less than minimum wage or pretty close to it. We work because we want a better life, with more earning potential, and the sudden drop from a good income to minimum wage is a shock.

A typical income insurance policy is going to cover your after tax earnings as per the contract you have with your insurer, so depending on tax rates in your state you could receive anywhere from 75% to less than 50% of your earnings, however income protection insurance is not intended to be profitable, only to keep your income more or less constant.

Theoretically, income protection insurance is intended to match the value of your normal income after tax, to allow you to continue to pay your expenses including rent or mortgage payments, and feed your family. If you were already living on a tight budget, income protection insurance payouts won’t improve your situation.

Finding an insurer to offer coverage isn’t difficult, actually most banks, credit unions, credit card providers, and other financial services corporations will have a policy you could take out. Often your health insurance company will also have a policy, but all policies are different, some will only cover income protection from accident or illness, others also cover redundancy.Being a member of a union or industry association will allow you to check with your peers and group experts for advice, often they will be able to suggest an income protection insurance company that is respected and known to work well for your industry.

You’ll be asked to show bank statements or wage slips to prove your income at the time you apply for the insurance, and this is used to determine the premium you’ll pay. If your earnings increase substantially, more than a few percent, whilst you have the policy you are advised to notify your income protection insurer, otherwise in the event of a claim they may refuse to pay your full entitlement.

Usually payments made by the insurer will only be made fro twelve to twenty four months after the claim is presented. This does vary from insurer to insurer and from person to person, and may be included in the small print so be warned, with income protection insurance it is a good idea to ask directly what they cover, for how much, and for how long.

More serious illnesses and injuries that prevent the insured ever working again are generally covered by most income protection insurance and could see you receiving payments until you reach retirement age. Understandably insurers don’t like paying out these sorts of claims and will likely insist on regular medical examinations.

Before accepting a policy in a high risk job, one where amputation or permanent injury is possible, make sure the policy specifically doesn’t exclude your job activity. Be sure to specifically check that any job you might be asked to do by your employer is going to be covered.

Income protection insurance is only intended to prevent short term hardship when you can’t work, it isn’t intended to give you money for a new lifestyle, and may not even provide for alterations to your family home to make it easy for you to function.

If your current lifestyle couldn’t cope with major change be aware that you may need to talk to a professional about additional coverage. They should be able to advise on the best income protection insurance for your situation. Assets and earnings are very unlikely to increase in value in the event of not being able to work, so you should also talk to a wealth creation professional about your future goals.