What is Income Protection Insurance?

Among many other insurance benefits, income protection insurance can enable you to continue meeting your financial obligations if something unfortunate happens to you to prevent you from working. There are limits in how income protection insurance can be applied, however, so it is best to find out all the details in advance before signing up to it. It can also help you to avoid losing your life assurance policy altogether if you find it impossible to make your regular payments due to bad health.

Income protection insurance can provide you with great peace of mind by providing you with a safety net for future circumstances. If you miss a premium payment for your life assurance policy, you may accrue late payment fees or even fall into a policy lapse. If your policy is judged to have lapsed, that means that your policy is basically over and you may lose all your previous payments.

An insurance company does not have to pay out if you do not keep up with your premium payments. However, you can usually get your policy back after a policy lapse, but you will have to pay all the back-dated payments with the interest which has accrued in the meantime. This can prove quite costly.

With income protection insurance, you can make sure that your life assurance payments are maintained and also cover any other expenses you have, like mortgage payments or utility bills. The idea behind this kind of protection is that it can help you to manage financially while your circumstances are reduced. However, in order to qualify for an income protection insurance pay-out, you need to meet specific criteria.

Qualifying for Income Protection

Income protection insurance is only granted to you if you cannot work due to illness or injury. In these circumstances, you will usually be paid a percentage, often 70%, of your usual employment income. If your condition enables you to receive benefits from the state, these benefits may reduce the maximum pay-out you can get from your income protection insurance policy.

When you apply for this cover, you can often choose the length of your deferred period. This is the length of time between making a claim and the commencement of your payments. This deferred period of time can be anything between 4 weeks and 52 weeks, and the longer you think you can manage without any pay-out, the cheaper your premiums will be. You may consider that you will be able to live for a while off your savings without needing to access your income protection insurance.

One important thing you need to know about this type of protection insurance is that it does not cover you if you lose your job or get made redundant. It covers incapacity to work through illness or accidental injury only. In addition, if you become unemployed during the life of your policy, this may invalidate your cover or cause an alteration in your premiums. If you think that it is unlikely that you will avoid a period of unemployment in the future, you may need to think very carefully before taking out an income protection policy.

There are also many exclusions that can exist on these types of policy. If your accident or injury is the result of certain maladaptive behaviours, your insurance company will not pay out. For example, accidents resulting from intentional self-harm, acts of criminality or situations of war are likely to be excluded from an income protection insurance policy. Similarly, illness resulting from pregnancy or drug or alcohol abuse may also be excluded from this type of policy.

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