What is your most important asset? Many people see their home or their car as their most valuable assets and buy insurance policies to protect these assets, but in reality, the most valuable asset for most people is their ability to earn an income. Loss of income, for any reason, for a long period of time, has serious implications on our lifestyle and family. While cost is an important consideration in buying an insurance policy, your financial needs are more important; you should ensure that your financial needs will be taken care of by your insurance policy.
Income Protection insurance is an insurance policy that can replace a part of your income in case you are unable to work due to unemployment / redundancy or accident / sickness. Income protection insurance will enable you to meet your regular expenses like food, mortgage / rent, credit bills during the period you are out of work. If you do not have income protection and are out of work for a long period of time, how will you pay for these expenses? The pay-out from the policy continues until you start working again or until you retire or until you die or until the end of the policy term, whichever is sooner. There are two types of Income Protection Insurance: -
Anyone, who gets paid for the work they do, should consider buying income protection. Certain events in life like house purchase, childbirth or any other event, which involves long term financial obligations, make income protection insurance a serious consideration
The amount of cover will depend on your own financial circumstances. Your insurance cover should be sufficient to meet your expenses during the period you do not have any income. Income protection pay-outs are usually based on a percentage of your income, e.g. 50%, 70% etc. If you choose to insure a higher percentage of your income, your premiums will be higher and vice versa. Therefore, it is important to evaluate what is the minimum cover you require. The cost (premium) of accident, sickness and unemployment cover will depend on age, health and occupation. You should understand the product features of income protection insurance very well so that you are able to make the most appropriate purchase.
The purpose of insurance is to provide financial protection in adverse situations. You should be very clear why you want to buy insurance, how much cover you need and then match the offerings of different products available in the market with your needs. Income protection insurance can appear more complex than other types of insurance products. The terms used in income protection insurance mayseem confusing. You should always understand the different product features before buying. We have tried here to explain the broad categories of income protection insurance products and some important features. However, if you want more information on income protection products and their different features, you should consult with an Independent Financial Advisor.