Finding Financial Peace of Mind: All About Income Protection

19 Feb

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You already have a retirement fund, so why would you need income protection insurance? It’s just another premium to pay, insurers don’t like it when you file a claim, and you don’t actually get a lot of money even when you do, right? Wrong. While it’s true that insurers try to conserve their cash reserves, they also have an obligation to meet the terms of their contract. It does cost money, but not as much as you might think.

What Is It?

Income protection insurance used to be known as permanent health insurance or long-term disability insurance. It’s a type of long-term insurance that is designed to support you when you can’t work due to illness or injury.

It will replace part of your normal income during a disability and pays out until you can resume work. There is a waiting period for all policy types – payments start after your sick pay ends or after other insurance stops covering you. Generally, you can set the waiting period. The longer it is, the lower your monthly premiums.

This type of insurance does not pay a lump sum of cash and is not the same as short-term income protection that lasts for only a few years. 

What Does It Cover?

This type of insurance will cover most illnesses and injuries that put you out of work. Whether the policy stipulates “unable to work at your current job” or “unable to work at all” depends entirely on the issuing insurance company.

Some insurers only cover you if you can’t work at your current job. Other companies will insure you only if you can’t work any job – that’s significant. If your policy requires you to find another job that you can work at, it seriously diminishes the practicality and benefit of buying the insurance.

What Doesn’t It Cover?

Income protection doesn’t cover everything. For example, it won’t cover pre-existing medical conditions, normal pregnancy, disabilities or illnesses that result from criminal acts, misuse of alcohol or drugs, self-inflicted injury, or a disability that results from war, invasion, or terrorism.

Do You Need It?

Income protection quotes aren’t the only, or even the primary, consideration in deciding whether to buy a policy. Insurance is needs-driven. In other words, if you work a high-risk job, you’re probably better off having the insurance.

For example, let’s say you work in construction. Every day, you go to work, and you’re playing around with a wrecking ball. What could possibly go wrong, right? This is definitely the type of job that requires income protection.

What about an office or desk job? You might be surprised at just how useful an income protection policy is here. Carpel tunnel, and orthopaedic issues are common in office jobs. You bend over to pick up a piece of printer paper off the floor and tweak your back because your muscles are tight from sitting all day – not good. While income protection cover isn’t necessary for all jobs, don’t discount it just because you don’t see an obvious way for you to become injured. Like all things, it’s better to be safe than sorry.

Andrew Harvey is a longtime financial advisor and father of five. When he’s not helping a client, he’s sharing his insights online.

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