Income insurance is also known as permanent health insurance. If you are unable to work due to illness or disability, this income insurance is designed to pay you to replace a portion of your lost monthly earnings.
It is your choice regarding how much protection you buy. It is possible to be provided with a tax-free monthly income between 50 and 60% of your usual income. This amount continues to be paid to you until you return to work or retire.
The payout period is usually limited to 5 years. For people who are self-employed, this is considered essential. A self-employed person would not have sufficient to live on if ill-health or an accident deprived him or her of a monthly income. Should the unforeseen occur, person who is employed would need to know in what way an employer would provide income insurance for them in the way of sick pay or retirement benefits.
The term “unable to work” varies from policy to policy. It could mean:
You cannot do your job;
A job that you are qualified to do is beyond you;
An inability to do any kind of paid work;
Some policies also make a partial or rehabilitation payment if you are able to return to your old job. This is in a reduced capacity – for example, part-time.
If you go back to work full time but take a lower paid job, there are policies which will make a proportionate payment to top up your earnings.
WHAT IS NOT COVERED
If you are receiving a full salary, you will not be paid income insurance from a policy. You would have to be off work for at least four weeks (deferred period) before you are paid. You may choose a longer deferred period (up to 52 weeks.) This therefore will reduce the cost of the insurance premium. If you are employed, your employer may offer you sick pay for a certain period of time. In this case, it may be wise to choose a deferred period of a similar length of time.
If you take part in dangerous sports or other health-threatening activities which you do not disclose at the time of taking out the policy, you will not have cover.
Any form of self-inflicted injury.
Drug and/or alcohol abuse.
Childbirth or pregnancy.
BUYING INCOME PROTECTION INSURANCE
Your age, gender, state of health and your type of work will determine the amount you pay for income insurance.
DECISIONS MADE BY YOU
What amount do you want the policy to pay;
What length of time do you want the policy cover to last;
How long are you prepared to wait before the policy pays out (the deferred period);
Do you want to build increases into the policy cover to cater for inflation.
Insurers differ in their attitudes to risks posed by different jobs therefore policies can vary. As a result of this, it is worthwhile dealing with a broke or independent advisor who specialises in protection insurance. Your particular circumstances should be taken into account on an individual basis.
MAKING A CLAIM
The policy document will inform you when you should tell your insurer that you are ill, and are likely to claim. Your insurer will verify facts with your doctor once your deferred period has ended Then you should start receiving payments.
Monthly medical certificates will have to be provided by your medical practitioner whilst you are receiving monthly payments.
WHAT YOU SHOULD LOOK FOR IN A GOOD POLICY
Make sure that insurance companies group jobs into classes based on the risk of being able to work. Different classes of work and occupations. For example Class 1 occupations (will have lower premiums) are the lower risk occupations through to Class 4, which are deemed to be higher risk.
Will give you a choice between guaranteed premiums and renewable premiums.
A choice of when the financial underwriting can be done, either when you take out the plan or when you make a claim.
You should be able to both increase and decrease the benefit amount as your circumstances indicate.
An option to add indexation at any point during the contract.