Income protection insurance is a vitally important cover, especially if you are self employed. It is insurance you will need to take out in order to protect yourself and your family against a loss of income should you become ill or injured and unable to work for any extended period. Such insurance will normally give you a monthly income that equates to 75 percent of your average earnings. It will ensure these payments are continued until you are able to return to work, or if you incapacity is prolonged, the payments will continue until you reach the age of 65 years, depending on what type of work you were originally employed to do.
Income protection insurance is an insurance which will allow you to continue to pay off your home, if you have a mortgage, or keep paying the rent if you are renting accommodation. It will also guarantee that you are able to continue feeding yourself and your family and that you can keep up with your day to day living expenses during times of enforced inactivity.
Income protection insurance will keep you financially independent and allow you to hold your head high in times of adversity. Without such assistance you could end up becoming destitute and living on handouts from family, friends, or even charitable institutions. However, there remains some aspects of income protection insurance that you may not be aware of, such as the following:
1. The start and finish of your cover. Cover will normally begin on the same day that you start your premium payments. Some policies will allow a cover note to be issued whereby your cover will start from the day you accepted the insurance by signing the contract. In this case you will be given a period of time, usually between 14 or 30 days to make your first payment.
2. Flexibility of occupational changes. You can obtain income protection insurance that will continue even when you change your occupation from what could be considered a ‘safe’ environment to a not so safe environment. Some insurance companies will place restrictions on your health, pastime activities, or the type of job you are involved in. Others will give you certainty in this area and continue with your cover under all circumstances because it would be too late to worry about such things as your parachute fails to open in your new job as a skydiving instructor.
3. Cover in all countries. People are not as restricted to remaining in the one country throughout their working life as they once were. If you feel you may be travelling to another country at some stage you will want to make certain that your income protection insurance continues to give you protection as you travel. Many policies will automatically give you this protection no matter where you may be in the world, others unfortunately may not. It will be up to you to make sure that the cover you have will keep you covered worldwide 24 hours a day, seven days a week.
4. Drug taking and suicide attempts. Income protection insurance policies usually have a death benefit attached to them and as such, self inflicted acts, such as intentional drug taking or suicide are excluded when allowing benefits to be paid. Some policies will have these acts excluded on a permanent basis while others may only have them restricted for a prescribed period.
5. Breaking a leg. You will be excluded from receiving any benefit from your income protection insurance if you are found to have caused an injury to yourself so that you can receive payments, such as voluntarily breaking a leg or ingesting poison. To be eligible for payment all accidents or illnesses that have affected your ability to work must be the result of an occurrence beyond your control.
Other finer points concerning income protection insurance to keep in mind is that this type of insurance is not intended to protect you from loss when being made redundant or simply losing your job. Your inability to be able to work must be the result of an injury or illness. Another matter to keep in mind is that you will still have to pay tax on whatever amount of income protection insurance benefit you receive. It is not tax free and will be regarded by the tax man as income earned in the normal way. You will also have to be in employment that takes at least 20 hours of your time a week. Anything less than 20 hours and you will be paying your premium for nothing. If your working hours have been reduced to below 20 hours for any reason you should bring the matter up with your insurer to see where you stand.
Income protection insurance is an important part of your insurance portfolio if you are self employed, operate your own small business, or are a contractor. Although you will not get the full amount that you are accustomed to receiving as an income, you will be able to keep paying your way in an independent manner.