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Income Protection Insurance provides a monthly income in the event of being unable to work due to sickness or injury. The insured selects a deferred period at the point of inception. This is the period of time after having stopped working before the benefit starts. The longer the time selected the cheaper the premium will be, it is advisable to arrange the benefit to start once employer benefits have ceased.
It is unusual for an employer to offer financial support beyond a year. At this point for those individuals with no income protection in place would then have a reliance on benefits. For many this would be a considerable drop in income and could cause significant difficulty paying mortgage and other financial responsibilities.
After having a significant change in health not only does this prevent you from working, it also increases your costs. Travel expenses rise due to having to attend treatments which often you are not allowed to drive home from. This either causes a reliance on taxis or support from friends and family impacting on their ability to work too. The cost of medication can be high and often changes in diet are required further straining finances.
How Income Protection Works
After making a claim, receipt of the benefits and subsequently returning to work, provided the insured person continues to pay the premium, the policy will remain in place. Irrelevant of what condition has been claimed for, how long or how much has been paid out, the premium the customer pays always remains the same. Additionally, no exclusions can be added once the policy is in force therefore making it possible to claim multiple times for the same condition.
There are two types of Income Protection. The most comprehensive policy is known as “Long Term” and will cover the claimant until the term expires, however a simplified product is available called “Short Term” at a cheaper premium. Short Term policies will cover the insured for a claim period of between 6 months to two years. However these products are likely to be inadequate in the event of falling seriously ill.
Things to note
Caution should be taken when arranging Income Protection on a non-advised based (we at Periscope Wealth offer a full advised service on all insurance products) because different policies have different claims criteria. For example, with some policies should an accident or illness prevent you from being able to do your “own occupation” you would receive the benefit. However, in the same circumstances other policies will not pay out because you are still capable of doing “any occupation”. Therefore, the probability of a pay-out can range wildly dependent on the T&C’s of the policy arranged.