Why Do I Need Income Protection Insurance?
What is Income Protection?
According to the Association of British Insurers (ABI) over 1 million workers in the UK alone find themselves unable to work due to injury or serious illness each year. An income cover could help to guarantee your continued income if you became ill or disabled. An IP policy covers you against illnesses and injuries that leave you unable to work and will continue to pay an agreed sum for an agreed period of time.
Income Protection Insurance or Life Insurance?
Both of these products provide financial security for families. Life insurance provides a lump sum payment in the event of the death of the insured person which can be used to pay off debts such as mortgages and leave a sum of money to pay for future family needs such as education and healthcare. Income protection insurance on the other hand pays an agreed income when the insured is unable to work for an extended period of time due to a claimable illness or injury. The benefits of Life Insurance are paid to the insured’s dependants, whereas with Income protection the benefits are disbursed to the policy holder directly.
Life insurance is critical to provide families with ongoing financial security and is often mandatory when a mortgage or some other loan or debt must be covered. Nonetheless, an employed worker is always more likely to get ill or injured than to suddenly die so Income insurance protection is an equally important financial tool and should be considered just as important as life insurance from a financial coverage point of view.
How Much Does Income Protection Insurance Cost?
The cost of income protection will vary depending on a range of factors such as the amount of income to be covered, the period of time the protection is to be provided for and whether any additional benefits are included. Obviously these factors impact the premium payable. Insurance companies offer different policy packages, from the basics which are cheaper, through to premium plans which give full coverage and are obviously more expensive.
A policy holder’s health; age; profession; location and smoking status all impact upon the premium. The period of time the policyholder needs to be off work before a claim is payable (the ‘waiting period’) can be adjusted – the longer the period, the lower the premium.
How Much Does Income Protection Insurance Pay Out?
Income Insurance payouts are a predetermined percentage of the insureds regular income. Commonly they are set at around 75% of the normal income level, but this percentage can be higher or lower than this – depending on what the insured wants and can afford and what the insurer is prepared to accept. Income protection insurance as well as life insurance are tax deductible in most cases, depending on the countries’ regulations. Again the ‘wait period’ is also a factor, with no benefits claimable until this period of time has elapsed.
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