Insuring your Earnings: Income Protection Insurance
Earning an income is referred to as “making a living”, because survival, and maintaining our lifestyle, depends on the ability to work and make money. When health problems or other unforeseen circumstances prevent us from being able to work and generating income, the stress and financial strain can make life extremely difficult - especially if our financial responsibilities include repaying debt, mortgages or supporting a family.
Serious illness and disability can be difficult to deal with, without the added pressure of making loan repayments and the risk of defaulting on mortgages or even bankruptcy.
It can be extremely stressful to find yourself without a source of income, not just because of the financial burden of major financial obligations, but because we need income to pay for the other necessities in life, such as food, transport and other day-to-day expenses.
For peace of mind, and to protect yourself from problems associated with an unexpected inability to work, Income Protection Insurance plans.
There are many types of Income Protection insurance, with each plan having different terms and levels of coverage. How much income you will be compensated for, should you make a claim - and how long you will receive payments - depends on a range of variables.
There are two main types of Income Protection insurance;
Indemnity value policies cover policy holders for the income they can verify at the time the plan is opened, but the income amount you are insured for may be influenced by fluctuations in earnings. Policy holders with indemnity value plans may be insured for less than the earnings reported at the time the plan was first opened, as reduction in income may be considered if they make a claim.
Agreed-value Income Protection Insurance is based upon an income level agreed upon by both the insurer and policy holder, reflecting your income at the time the policy is opened and isn’t reduced by decreases in income, or your earnings at the time a claim is made.
Those that are self-employed, have fluctuating incomes or periods without work (such as maternity leave or unemployment) may be much better protected with an agreed-value Income Protection plan, but the premiums for these policies are higher than indemnity plans.
Income Protection insurance allows people to maintain their lives and manage their expenses in times that they are not able to work. Unlike traditional life insurance or critical illness/disability insurance policies, Income Protection is paid in regular (typically monthly) instalments, rather than a lump sum. How long these payments continue, and the requirements to receive them (injury, illness, disability - even redundancy, in some plans) depends on the policy.
Work cover, paid by employers, only covers illness or injury caused at work, whereas Income Protection insurance covers you for things that can happen outside of the workplace.
iSelect can help compare plans and find the best value Income Protection for your money. Feel free to contact one of their experts today to find out more.