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Income protection and life insurance
Many of us face challenges in maintaining our essential costs such as mortgages and rental costs and in the event that we lose income as a result of illness or accident, Income Protection is a long-term insurance policy that provides you with regular income continuity until the time of retirement or possible return to the workforce.
In this topic.. Learn about how this type of insurance works, when it is necessary, and the points that you must consider when deciding to purchase it.
How does income protection insurance work?
This insurance provides regular payments to replace part of your income in the event that you are unable to work as a result of illness or accident. This compensation is paid until you are able to return to work again or until the time of retirement or death, and the condition that occurs first is determined.
Claims can be submitted repeatedly as needed throughout the insurance period, as a specific waiting period is determined before compensation payments begin and the waiting period is chosen according to a prior agreement. The length of the waiting period also increases when this reduces the value of the monthly premiums.
This differs from critical illness insurance, which pays a one-time sum upon the diagnosis of a specific critical illness, as these insurances provide periodic compensation for a certain period.
When do you need income protection insurance?
When we experience inability to work due to illness or accident, we may expect our employer to continue to provide us with a certain level of income however in reality, employees are often transferred onto statutory sick pay within six months.
Few employers continue to support their employees for longer than a year in the event of illness so you should check what support your employer will provide you in the event of illness.
Depending on how much savings you have, losing income may mean you're unable to pay essential household bills like mortgages or rent and utility bills, which can be especially difficult if you're working as a freelancer and don't have any reliable sick leave.
Ways to secure your income
There are several ways you can secure your income in the event of being unable to work due to illness or accident:
1. You can take advantage of sick pay provided by the employee benefits package, as it may provide you with an income period of 12 months or even more.
2. You may rely on government subsidies to cover your expenses, provided that these subsidies are sufficient to meet your financial needs.
3. If you have sufficient savings, you can rely on them to support yourself during the period of inability to work. Be aware that you may have to have enough savings to last you a long time.
4. Consider taking early retirement if you meet the necessary conditions, as this can be an option to ensure the continuity of your income.
5. If you have a partner or family, they may be able to support you. For example, if you have a partner who has enough income to cover basic expenses for both of you, this can be an additional guarantee of your financial sustainability.
How much does income protection insurance cost?
The amount of premium you pay monthly for income protection depends on the type of policy and your personal circumstances, as income protection policies cover a wide range of illnesses, conditions and situations.
For this reason, it is crucial to compare the services offered by different insurance companies and examine whether they effectively meet your needs.
How can I buy income protection insurance?
Insurance premiums can vary greatly and insurance companies may rely on various criteria, so it's worth researching and shopping around to find the perfect option.
To ensure adequate coverage, it is best to use an independent financial advisor or specialist broker, as these professionals can provide advice on the specific details of available policies and ensure you choose the right policy for your needs.
They may charge a fee for their services, or insurance companies may pay them a commission. There may also be brokers and insurance companies that specialize in providing coverage to people who have been denied insurance, whether because of a special health condition or because they hold a job not covered by standard policies.
Five things to think about when buying income protection insurance
1. Honesty in providing medical information: It is important to be honest when providing your medical information to the insurance company. When submitting a claim, your medical history is examined and if your answers are not accurate or honest, you may not get the compensation you need.
2. Choose the appropriate level of coverage: You can choose one of three main levels of coverage, which depend on your current situation:
- Your own profession: If you are unable to practice your own profession.
- Suitable profession: If you are unable to practice a job that matches your skills and experience.
- Any profession: If you cannot perform any type of work.
3. Read the terms carefully: Read the terms of the insurance policy carefully and make sure you understand what is covered and what is not covered, as you must inquire about definitions and exclusions that may differ from one company to another.
4. Your right to withdraw: You have a period of 30 days from the date of purchase of the policy to change your decision and receive a full refund.
5. Update your policy regularly: Circumstances can change over time, so review your policy periodically to ensure you continue to provide the necessary coverage, as changes in your life such as having a child or changing a job could require an amendment to your policy to meet your current needs.
How to cancel income protection insurance
You can request to cancel your insurance policy at any time, but there are some points to consider:
- Cost of Replacement Coverage: Insurance alternatives can be more expensive, especially with age as prices generally rise.
- Pre-existing medical conditions: If you have pre-existing medical conditions, they may not be covered by the new policy, so consider this.
- Non-refundability of the policy: After canceling the policy, you may not be able to reactivate it or purchase a new policy with the same terms once cancelled.
- No cancellation fees: There is usually no cancellation fee, but should you stop paying the premiums, you will not get a refund of the premiums you have already paid.
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