What is Income Protection Insurance?

Income protection insurance is a long-term type of insurance plan that supports you financially if you can’t work due to illness or an injury. This used to be known as long-term disability insurance or permanent health insurance.

What Does it Do?

  • Income protection insurance replaces part of your income while you are not working because you are sick or disabled.
  • It will replace your income until you can go back to work, until you retire or until the policy term ends whichever comes soonest.
  • It does involve a small waiting period before your payments begin. Normally, you set the payments to begin after your sick pay ends or any other type of insurance stops covering you. Your premiums are lower the longer you wait. Income protection insurance isn’t the same as critical illness insurance. Critical illness pays out in one lump sum. Income protection pays a part of your take-home pay or gross salary. You can decide how much you want, but it is usually set at half-pay or a little over. You can claim the benefit as many times as needed as long as the policy lasts. Income protection insurance isn’t the same as short-term income protection. Short-term income pays out one monthly sum based on your income, but only for a specific time period and covers less illnesses and circumstances.

What Does Income Protection Cover?

When it comes to income protection insurance, it all depends on getting the right type of policy. Consequently, you will want to speak to an adviser or broker to get the best type of coverage. In most cases, almost all illnesses that leave you unable to work are covered. Whether you are unable to work at all or only unable to work at your current job is defined by the policy you buy and the definition of the illness or incapacity as stated in the policy. Read the policy coverage completely, and make sure you understand the terms and definitions before you buy.

What Doesn’t Income Protection Insurance Cover?

In most cases, the policy will come with a list of circumstances and illnesses that it won’t cover, called exclusions. Some of these include

  • Normal pregnancy
  • Disabilities or sicknesses that are due to any criminal act
  • Illnesses or disability due to war, terrorism, invasion or riots
  • Any pre-existing illnesses that you had before you bought the policy
  • Self-inflicted injuries
  • Misuse of drugs or alcohol If you have a dangerous job or existing health problem, you might not qualify for coverage.

Do You Need Income Protection Coverage?

Whether you have children or not, if having an illness or injury means you won’t be able to pay the bills, you should seriously consider having income protection insurance. If you are self-employed, or if you don’t have sick pay through your place of employment, you should consider income protection insurance. You might not need income protection if any of the following apply:

  • You can pay your bills with your sick pay
  • You can survive on the benefits the government offers • You have enough in your savings account to take care of the bills
  • You can retire early
  • Your family or partner can support you When you think about income protection insurance, consider all the above points, and speak to a broker or financial advisor so that you can make the best decision.