Why Do I Need Income Protection Insurance?
Income is one of the most vital resources in our lives. First of all it enables financial security. So it is reasonable to state that income has to be protected. However, why do so many working individuals nowadays fail to adequately safeguard one of their most valuable assets—their income? That, in our opinion, is due to the lack of proper information about income protection insurance. According to the most recent studies, many people would be more inclined to invest in income protection insurance if they just knew more about it. Thus, let us now explore the benefits of IPI coverage and the significance of buying it for you.
What is Income Protection Insurance (IPI)?
Life is full of surprises, and losing a job shouldn't put your life at risk. Thus, buying income protection insurance is important in today's world. Income protection insurance, also known as permanent health insurance, makes sure that policyholders have a regular income when they are unable to work due to illness or a disability, at least until they retire, are able to return to their job, or find a new one.
Why Do I Need Income Protection Insurance?
Income protection insurance is for you if your family—including your spouse, kids, and parents—depend heavily on your income. No one is safe from losing their job, especially in this day and age when the pandemic situation gets worse by the day. Therefore, you require IPI coverage in order to care for not only yourself but also the people you love.
Another reason for purchasing IPI coverage is being self-employed. It will compensate for your lost cash flow. Without insurance, you are at risk of falling into debt or possibly being forced to shut down your business. You will have peace of mind knowing that you have self-employed income protection insurance.
What Does IPI Cover?
Income protection insurance is designed to:
- cover between 50% and 70% of your income,
- provide regular income,
- cover the majority of illnesses that prevent you from working, either temporarily or permanently,
- be claimed as many times as you need while the policy is in effect.
Levels of Income Protection Insurance Coverage
While purchasing an income protection policy, you will be asked to give the "definition of incapacity." After that, your definition is categorized into one of three IPI coverage levels. The three main coverage levels are own occupation, suited occupation, and any occupation.
The definition of incapacity enables you to file a claim if you become severely ill or disabled to perform the duties of your particular job function. For instance, you have a job that keeps you on your feet for extended periods of time, and you suffer a significant leg injury that forces you to use crutches. This would be a reasonable basis for you to file a claim with your insurance company because your injury would impede you from performing your regular activities. This is typically the most expensive option, but there is a higher likelihood that your claim will be accepted.
A suited occupation means you cannot perform your own job or one that is similar to it. However, this type of coverage will require you to do another job that matches your skill set. For instance, your occupation requires you to stand for long periods of time, and you sustain a serious leg injury that necessitates the use of crutches. In this situation, you might be required to take a job that fits your skill set and permits you to be seated all day. You can file a claim and receive your compensation if you are still unable to take another job due to the severity of your injury.
The cheapest level of IPI is the definition of incapacity as "any occupation", which will provide compensation only in case you are unable to work in any occupation. There is a higher possibility of it not paying out because it usually requires total impairment in order for a claim to be successful or the inability to carry out basic tasks.
How Much IPI Costs
The premium of income protection insurance is affected by your age, gender, occupation, health, the portion of your income that you want to cover, the deferred period before the policy pays out, and the types of injuries or illnesses you have. Besides that, prices can vary as various insurers may employ quite different standards. Therefore, it's worthwhile to shop around and compare the suggested prices. However, finder.com estimates that if you make $5,000 per year, income protection will cost you about $64 per month.
What to Know Before Buying Income Protection Insurance
If you plan to purchase income protection insurance, you should take the following factors into account:
- Provide your insurer with accurate information. You might not receive the compensation you require if you failed to answer questions honestly on your application or did not disclose something.
- Before signing the agreement, it is crucial to carefully review the terms and conditions in the document to be sure they match your needs. If you find something difficult to understand, it is important to discuss the points with the insurer.
- Note that after signing the contract, you have 30 days to change your mind.
- Keep your insurance coverage updated. Your policy might no longer safeguard your income due to changing circumstances. Therefore, it is essential to review the contract's terms from time to time to determine whether you need to enhance them.
Who Does Not Need Income Protection Insurance?
If, for instance, you have an employee benefits package that provides you with income for a year or longer, you may get by on your sick pay, but you might not require income protection insurance. Besides, if government assistance covers all of your expenses, you may survive without the insurance.
Additionally, individuals who are able to retire early or who have sufficient savings to support themselves without a steady source of income may not need to purchase IPI coverage.