Income Protection


Who needs it?
Your circumstances will determine whether income protection is necessary for you. As a general rule – if the quality of your life depends on your income, income protection is worth looking into. It really comes down to how long you could live without an income – and what the impact of this would be on you and other people.

What is income protection?
If you’re unable to work due to sickness or injury, income protection can provide you with a monthly benefit that replaces your income. You can choose the amount of this benefit – it will usually be a maximum of 75% of your pre-disability income.

Are there different types of income protection insurance?
Yes. Plans are not all alike – the plan that is right for you will depend on your situation (a quick example – if you have an income that fluctuates, the plan that suits you may be different to the one that would suit a person with a stable income.) Also, policies can have variations in their policy wordings (for example the way the insurance company defines “disability” or assesses your pre-disability income). It’s important you understand these – they can make a big difference if you need to make a claim.

How long can I claim for?
Your income protection plan should give you a choice of how long your benefit (the payment made if  you claim) is paid for. Often the choice will be 2 years, 5 years, or until age 65. Choosing a payment period of 5 years would mean that if you make a claim your benefit will be paid for a maximum of 5 years. If you select a “till age 65″ payment period, your payments would continue until you reach age 65 (as long as you’re disabled during that time). So the “till age 65″ offers better protection – but it’s more expensive.

What is a waiting period?
Your income protection payments won’t start until after your waiting period. After your waiting period you will be paid a monthly income. You can choose the waiting period (though there is often a minimum of a month). A plan with a waiting period of 1 month will have much higher premiums than a plan with a waiting period of 3 months. The waiting period that’s right for you depends entirely on your situation and how long you could realistically get by without an income. If you have an emergency fund that can tide you over if you are unable to work you might be able to choose a longer waiting period (lowering your premium).

What if my job changes?
Revisit your insurance regularly or when your situation changes to be sure you still have the right kind and amount of cover. A change in your job may well have an effect on your income protection plan. So keep your adviser up to date on any changes to your situation.

Do income protection plans have exclusions?
Yes they do; these vary depending on the plan. A typical list of exclusions might include self-inflicted harm, criminal activity, pregnancy or complications thereof lasting fewer than 90 days after the birth. There may be specific exclusions applied to your policy because of preexisting medical conditions.or risky pastime activities.

How much does income protection cost?
This depends on several factors. Among the more important are your particular occupation, your  age and gender, your health, the amount you insure, and the waiting period and payment term you choose. Also, if you’re a non smoker you’ll pay less.

Is it true that income protection premiums are tax deductible?
Often, yes – but it does depend on the type of plan. As you can imagine this is something you don’t want to get wrong – so make sure you understand whether your premiums can be deducted or not. Also note that the benefits paid to you by some policies are net of tax while others are taxable.