Personal Financial Planning
Income Protection Insurance
What is Income Protection?
Income Protection Insurance is an effective way to cover loss of income due to unemployment, accident and sickness.
You don’t have to declare any of your expenses such as outgoings towards mortgages, loans or other commitments as income protection is purely income based.
There are several income protection insurance providers. Every insurer has a well-defined approach towards how much you can cover yourself for. Most insurers allow upto 50% of your gross monthly income as the maximum benefit amount, while some insurers allow upto 65% of your gross monthly income.
Income Protection Insurance can be divided broadly into two types – Short Term Income Protection Insurance and Long Term Income Protection Insurance.
With the short term policies, the cover options you have available are:
- Unemployment, Accident & Sickness
- Accident & Sickness only
- Unemployment only
Short Term and Long Term Income Protection Insurance
With long term policies, the cover options you have available are “Accident & Sickness only”. There are some insurers who offer medium term policies such as policies for 5 years and the type of cover you can choose will depend on the insurer.
You can buy income protection insurance regardless of your type of employment – employed, self-employed or contract employment. The eligibility criteria differs depending on your type of employment.
With the short term policies, the maximum number of months you can seek a claim will be 12 to 18 months. With the long term policies, you can cover until your age of 65 years. It is important to note that if you are looking for unemployment only then the maximum you can cover will be only 12 to 18 months.
The other difference between short term and long term policies is the way they are underwritten. This is applicable for accident and sickness policies. The short term policies are usually underwritten only when a claim is made which means the insurer will offer you a policy without going into any details of your medical conditions and you can buy them immediately. The long term policies are underwritten before you buy them and you will have to go through a detailed medical interview.
Eligibility and Excess Periods
It is important to note that income protection policies have well defined eligibility criteria and you have to ensure that you meet all of them, failure to do so can result in the insurer not paying your claim.
You also have a choice in terms of excess days. Excess period is the number of days you will have to wait before you start accruing your claim. Best Insurance offers a wide range right from back to day 1 to excess of 120 days.
Speaking to an advisor helps you understand the policies better, exclusions, any special terms and conditions and the fine print!