An illness or an injury can prevent you from being able to work, which can cause you and your family financial hardship. Being unable to earn a wage can result in the loss of your home and insufficient funds to pay your bills or even daily living expenses. Whether you are single, married, or have a family, you need to make sure you have insurance coverage in place to protect you and your loved ones in case the worst happens and you can no longer do your job.
Insurance coverage exists to provide protection against loss of income, as well as coverage in the event of a critical illness. You need to know what the different types of policies are and make an informed choice about what kinds of insurance you need.
What is income protection insurance?
Income protection insurance is designed to provide you with replacement income if you are seriously injured or ill and cannot work for a period of time. Income protection insurance generally provides you with monthly payments that replace up to 75 percent of your monthly income that you lose due to injury or illness. You can replace your lost income for up to two years with most policies.
Is income protection insurance a type of life insurance?
Income protection is different from a life insurance policy, which pays out upon your death or if you have a covered serious illness or terminal condition. While a life insurance policy generally pays out a lump sum for a death or a covered illness or injury, income protection insurance pays out a monthly payment for a limited period of time while you remain unable to work.
Is income protection insurance the same as critical illness insurance?
Income protection insurance and critical illness insurance are not the same types of coverage, although they can pay as a result of the same type of diagnosis. Critical illness insurance, which is also called trauma or recovery insurance, provides financial freedom in the event of a serious illness or injury because you receive a lump sum when you have a covered condition or get badly hurt. Income protection insurance, on the other hand, replaces your income in situations where an illness or injury stop you from working.
Can you have multiple types of insurance that pay out for the same illness or injury?
It is possible to buy multiple different types of insurance policies that pay out for the same illness or injury. If you have both income protection insurance and critical illness insurance, for example, you could receive a lump sum payment through your critical illness insurance cover when diagnosed with cancer or paralyzed by an accident and you could also receive monthly income if your cancer or paralysis prevents you from working.
Who should buy income protection insurance?
Virtually everyone who works for a living should have income protection insurance. If you or your family members could not survive without your income coming in, you should have this type of coverage. Having income protection insurance could mean the difference between not being able to make rent and house payments and having financial security even when you are ill.
How does income protection insurance work?
Income protection insurance replaces your income if you have a covered illness or injury that stops you from being able to do your job. You receive a monthly payment for up to 75 percent of your gross income, with a maximum monthly payment of $10,000 per month. Payments are generally made for up to two years if you remain unable to work for that length of time.
Your insurance policy documents (product disclosure form, or PDF) will provide details on when you can begin receiving monthly payments if you become unable to work due to an illness or injury. There is usually a short waiting period before coverage kicks in when you first sign up (for example, there may be a 30 day waiting period). When you make a claim and begin receiving the monthly income due to being unable to work, you will not have to make premium payments during the time when the policy is paying out.
How long can you get coverage for?
Buying income protection insurance when you are young is advisable as you will pay less for coverage if you buy it earlier in your life. Most policies offer guaranteed renewal until you 65th birthday. This means you can keep your income protection insurance in effect for the whole of your working life. While you hopefully will not ever need to make a claim, the policy will be there for you in case you need it.
How much does income protection insurance cost?
Income protection insurance costs vary depending upon how much you are earning in your position and what your salary is. For most people, the cost of premiums is just a few dollars a day.
How can you shop for income protection insurance?
To shop for income protection insurance, compare policies and costs from different providers. Be sure to focus not only on premiums, but also on what your waiting period is before coverage kicks in, how long you will receive coverage if you cannot work, and when you will receive payments from the insurer if you become sick or injured. Find the best policy to meet your needs and ensure you won’t be left in dire financial straits if you become sick or get hurt.
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