An income protection policy is unfortunately a seldom taken up insurance cover.
Many people are not even aware of its existence but should take note of how beneficial it can be in times of unforeseen events.
Restore Income Earning Capacity Income protection insurance works to ensure that working adults are able to maintain an equal, or close to the same level of income earning power as what they had before becoming unable to work due to illness or an accident.
Becoming ill or getting in to an accident is not anyone's fault.
It is simply an unexpected occurrence.
Because of the devastating consequences the loss of income can create, it is important to have a backup plan that will see a person retain control of their financial situation.
Income protection insurance is the best backup for this.
Many policies provide payouts of up to seventy five percent of a person's pre-tax income.
The discounting is due to the fact that the payouts are made tax-free and the insurance company would not want to give undue advantage to the policy holder.
Some policy holders may however get even less of a payout if they agreed to this in order to be charged lower premiums.
Ensure Continued Meeting of Obligations Being able to earn a similar amount as what you had before an illness or accident means that you can still meet your normal obligations like mortgage payments, utility bills and regular household shopping.
When agreeing to the terms of the income protection policy, a client should carefully consider the deferred period.
This is the period between when they stop working, due to injury or illness, and when the insurance payouts kick in.
During the deferred period, the policy holder will have to rely on any sick pay the employer will provide and their own savings to help meet their expenses.
It is important to be familiar with your employer's policy in as far as sick pay is concerned.
Learn the period for which you will be entitled to this benefit and the amount.
The more savings you have and sick pay you receive, the better able you will be to meet your obligations during the deferred period.
A longer deferred period can also lower your insurance premiums significantly.
Provide Peace of Mind To be incapacitated and unwell is bad enough.
The stress of having to worry about how you will make ends meet can prolong illness.
With an income protection insurance policy, you can put your mind at ease and focus on recovering.
Loss of income is a contributor to stress and depression.
Both of these effects can result in worsening of a person's health.
The period over which one can enjoy the benefits of income protection cover depends on the kind of policy chosen and the deferred period on it.
Long term policies allow the policy holder to continue receiving payouts from the moment the deferred period ends to when pension payment or retirement begins.
The payout will of course cease when the policy holder recovers and has returned to work.
A short term policy on the other hand can only guarantee payouts for a predetermined period.
Many short term policies run for up to 12, 24 or 36 months.
Once this period is over, and even if the policy holder has not returned to work, the payments will stop.
It is worth considering that a long term policy will provide you with cover indefinitely, hence giving you less to worry about.