Income protection pays part of your income so that you can focus on getting better rather than trying to make ends meet.
Each company can define partial or total disability differently, and you need to meet these requirements if you are to receive benefits. Check the conditions and ensure that they are sensible and suitable for your necessities. If you do meet these conditions, you can receive up to 85% of your usual income for a specified period. This can be extremely beneficial if you are the sole income earner of a household, own a small business, or are self-employed.
When choosing a policy, you need to consider the following factors.
Indemnity value policy: Insures you for the amount you are paid i.e. if your pay decreases after you buy the policy then you will receive a smaller payment. These policies are cheaper and more useful for individuals who have a steady income.
Agreed value policy: Alternatively, this type of policy is not affected by your income i.e. you will receive the amount of money that was agreed upon when you signed the policy. These can be a bit more expensive but they are useful if your income changes every year.
This is the period of time you have to wait before you start receiving payments and it can range from fourteen days to two years. The longer the waiting period, the cheaper the policy. Before you agree to a waiting period, consider how many leaves and emergency funds you have which could provide you with some leeway.
You will receive your insurance payments for a specified period but how long that period will last depends on the insurance policy. Commonly, policies offer payments for two to five years or until you are of a certain age (e.g. 65). A longer benefit period results in a more expensive policy but also more protection.
Stepped or level premiums
The premium you choose will have a large impact on how much your premiums cost throughout your policy.
- Stepped premiums: The premium is recalculated at each policy renewal and will usually get higher as you age because the chance of claim also increases with age.
- Level premiums: You will start off with a higher premium but there will not be changes to cost based on your age, rather, will occur more slowly over time.
You should particularly consider a thorough life insurance policy if your work tends to involve more risk as there is greater scope for injury.