Put simply, income protection insurance is an insurance that is paid out monthly to provide you with an ongoing income in the event of a serious accident or illness. The insurance pays a benefit of up to 75 per cent of your normal taxable wages should you be unable to work due to a serious illness or injury.
There are many unique features associated with income protection insurance, and, of course the most important one is that it is a stipend paid monthly. But, let’s take a look at some of the other features associated with this form of insurance.
With income protection insurance, you are able to determine the length of time you receive your benefits. This could be two years, ten years, or even up the age of 70. This allows you some freedom in deciding your monthly Figure. When determining the benefit period you need to consider up until what age you would like monthly payments to continue to when you are no longer able to work. You also need to think about the possibility of a long term illness occurring, that way you know for certain that you will have a monthly stream of income until you are able to recover.
Another valuable feature of income protection insurance is that you can have the monthly stipend increase with inflation. The amount you receive now won’t be sufficient in five years, so this is an important feature to have included in your insurance plan. This is called an ‘inflation linked option’.
There is typically a waiting period before the income protection insurance benefits kick in because you must exhaust your sick leave and savings first. This can be a waiting period of as little as two weeks, or as open-ended as necessary.
However, there is an option available that allows you to take out a policy that only has a 14 or 30 day waiting period, which means that you will be guaranteed benefits once the waiting period has been served, regardless of existing sick leave or savings.
Income protection insurance is one of the most comprehensive and critical forms of insurance you can take out because it guarantees that you will continue to receive a steady stream of income even if you become too ill or injured to work.