How Does Income Protection Insurance Work?

If you buy income protection insurance (IPI) coverage, it will reimburse you for a portion of your lost income in case you are unable to work due to a disability brought on by an illness or injury. This coverage is intended to replace your income based on your annual earnings in the 12 months preceding your illness or injury.

Since nobody is protected from losing their jobs, income protection insurance is generally necessary for all working adults. People with dependents, however, require income protection insurance more because a loss of income could affect their ability to financially support not only themselves but also the people they care about.

The money that you are going to receive via income protection insurance is not equal to the amount you were earning before leaving your job. In most cases, income protection insurance covers up to 60% of your pre-tax income.

If you have already bought income protection insurance and want to make a claim to get your monthly benefits, this guide is for you. It describes the whole process of making a claim step by step and discloses some interesting facts about the IPI.

How to Make a Claim

As with any insurance policy, you must submit a legitimate claim before you can get your monthly benefits. The initial stage entails completing a claim form and going through an identity check, either online, over the phone, or by mail. This notifies your insurance company that you are signed off from work and provides them with a summary of your illness or injury, job, and earnings.

How to Provide Evidence of Earnings

If you are employed, you should provide proof of your earnings via Payslips, P60, and P11D forms. If you are a director of a limited company, you must provide proof of dividends paid and profits made. If you're self-employed, you should submit documentation of your gross income or earnings.

How to Provide Proof of Incapacity

A very important step is to prove you are unfit to work. This is a document requested by your insurance company in the form of a fit note from your doctor. The insurance company may also require written consent that allows them to:

• Look up your medical records.
• Obtain the outcomes of any medical tests or examinations.
• Request proof and data from your doctor.

An Important Note: If you have not received a "fit note" of absence from work from your doctor or if you do not meet the definition of incapacity set forth by your insurance policy, income protection insurance will not pay benefits.

The Deferred Period

The deferred period is the time the policyholder usually waits for the insurance company to pay the benefits. Short deferred periods usually make monthly premiums more expensive than longer ones. Generally, this time frame can last for a day, a week, a month, three months, six months, or a year.

An Important Note: Your insurance provider will never make a payout prior to the expiration of your waiting period.

When Does the Insurance Company Pay the Benefits?

Your claim will be accepted, and the insurance will begin paying out if the insurer does not discover any fake info. Income protection insurance pays out when the policyholder is determined to be unable to work due to illness or injury and the deferred period has passed.  Remember, your insurance company will not cover any other type of income loss, like redundancy or unemployment. It also won't pay your benefits if you continue to get income from your employer.

For How Long?

When you purchase income protection insurance, you get to decide how long the policy will pay out in the event of a claim. This is referred to as the "benefit period," which may be either short or long. The maximum benefit period for a short-term income protection policy is often 1 or 2 years. After this period, it won’t pay you benefits even if you are still unable to work. At the same time, there is no maximum benefit period for a full-term income protection policy, and it would continue to pay out as long as you are unable to work.

On average, income protection policies typically pay benefits up until the insured person is well enough to return to work and resume earning his regular salary.  It might continue for a whole year, two years, sometimes even longer. However, it lasts up to the age of 65.

Interesting to Know

• There are two different types of income protection insurance policies: agreed value and indemnity value. Since indemnity value only covers you for a fixed percentage of your income, it is less expensive. The cost of an agreed value is higher because it derives from a predetermined sum.
• There are age limits for purchasing income protection insurance coverage. Depending on the insurer, the maximum age at which you can get the insurance often ranges from 54 to 64.
• Normally, you have 30 days from the time you sign the contract to cancel it and end your income protection insurance coverage by getting a full refund. The amount of money you receive as a return after 30 days can be less than what you initially deposited.
• We are delighted to inform you that if you already purchased an income protection policy, coronavirus will also be covered by your policy. If the coronavirus makes it impossible for you to work, you might be eligible to file a claim and get benefits on a monthly basis.
• If you have been furloughed, you may still make a claim on your income protection policy. However, because insurers are using various strategies, it is worthwhile to examine the details of your insurance policy or to speak with your insurer directly.