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Income Protection
Income protection insurance
is a policy that is purchased to provide future income in the event that
income from employment is reduced or lost through redundancy or disability.
You should decide if you should purchase this type of insurance by
determining the features of such a policy, whether or not you need income
protection, and how payouts are made.
Features of Income Protection
Insurance The
amount of the policy is determined by your income level. This type of policy
is not attached to a mortgage payment or medical treatments. The policy
provides income lost from a regular job or position through long-term
illness, injury, or disability.
Most income protection policies have a minimum time period of disability
that must be met before payments can begin. Deferral periods specified in
policies are usually 4, 13, 26, or 52 weeks.
Disability is defined differently by each insurance company. You are
considered to be disabled if you are unable to return to the type of work
you did before the disability, and the type of work specified in the policy.
There are three definitions that further define the type of work covered by
the policy:
Own job is the job that was held in the same company.
Own occupation is the profession or occupation you were doing before
becoming disabled.
Suited occupation is a job or profession that requires the same education,
experience, or training as the job last occupied before the disability. You
must be totally unable to work in any occupation.
There are specific causes or diseases that are not covered by income
protection insurance:
Any injuries you may deliberately cause to harm yourself.
Participation in war or riots
Substance abuse
Disregarding medical advice
Pregnancy or childbirth complications
Aids unless contracted through accidental exposure or medical procedures.
As long as you pay your premiums and meet the requirements for disability
your insurance company is obliged to make payouts.
Do You Need Income
Protection?
Everything may be going very well in your career right now. You may be in an
industry that is projected to increase in the number of positions available
for many years to come. You may be in superb health. So why would you
consider purchasing income protection insurance?
The fact is that no matter how things are today it doesn’t mean that things
will remain the same. Any sickness or injury can suddenly happen that will
change your life forever. The saying goes, “It’s better to be safe than
sorry”. Finding a cheap income insurance policy is the best way to protect
yourself from future income loss at an affordable price.
Payouts
When the specified deferral period has been
satisfied you will receive periodic payments that are tax-free. These
payments will discontinue on the return to work or until the benefit period
has expired.
An income protection policy is not meant to replace all of the income you
made on your job. There would not be much incentive to return to work if
receiving income protection payments was equal to or better than working
your job. You will receive a maximum of 65% of your income from the previous
year.
Most insurers have a maximum amount of benefits. There are policies
available for over £100,000 yearly. You are not limited to purchasing a
fixed amount policy especially when your working income increases
substantially and often.
Also take into consideration inflation that will reduce the value of money
in the future. Many companies offer an insurance policy that is index-linked
to provide adequate inflation protection.
Before purchasing an income protection policy check with your employer to
determine if they offer any type of disability or sick benefits and how long
these benefits last. This will help you determine your deferral period. The
insurer will calculate any state benefits rather than any benefits paid by
the employer. You will receive 65% of your income minus the amount of state
benefits.
Use this article as a first step towards determining whether or not you
should purchase income protection insurance. Then look for the policy to
meet your needs.
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Income Protection
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