How to know which income protection insurance is right for you
Protective insurance, formerly known as permanent health insurance, is a policy that pays if you can’t work because of injury or illness. Insurance provides you with regular income until you retire, die or return to work. However, the income you can claim does not replace the exact amount you earned before you stopped working. You will receive about half to two-thirds of your pre-tax income from your job. Some of the money will be taken from state benefits you are eligible for, and the income you get from the policy is tax-exempt. Read on to find out which income protection insurance is right for you.
- The waiting period. This is the period during which the insured must be disabled before you become eligible for a benefit. The policy premium decreases as the waiting period increases. The best thing to consider when determining the length of the waiting period is your ability to self-insure and manage your cash flow for an extended period. However, you can access the Advanced Income Protection option, which is a benefit that pays during the waiting period.
- The percentage of insured income. The best income protection policies provide a monthly benefit of up to 75% of income. The higher your monthly benefit, the higher the premium. As a client, you can have multiple income protection policies to handle the short and long term financial implications of a disability. If you can cope with a lower level of replacement income in the short term, you may want to consider having a single income protection policy that covers a two-year benefit period.
- Agreed value or Indemnity Monthly benefit. An agreed-upon value policy provides security in the event your income drops. The policy pays you a full monthly benefit if you become disabled. An indemnity policy pays you less the monthly benefit and 75% of the income for the last 12 months. The main thing to consider here is the stability of your income and the likelihood that it will decrease in the future. Your employment status is a determining factor for income stability. If you are self-employed, you may be more worried about fluctuations in your salary. As such, an agreed-upon value policy may be better for you. For employees, an indemnity policy may be a more appropriate and excellent way to save money. If you want to consider the indemnity policy, be sure to look at the stability of your current and future income.
- Exclusion. Income protection policies do not always cover all types of illnesses. In addition, you may not be covered for illnesses that you or a member of your family have had in the past. An insurer will always review your family’s medical history. Some insurers will cover existing medical conditions while others will not. You can ask your insurer if there will be any conditions for your subscription. You should also check to see if your policy allows you to claim if you can still do other types of work than your job.
Taking into consideration income insurance, it is advisable to seek professional advice. Examine your needs, your situation and deal directly with your insurer. Avoid brokers who can give you incomplete information.