With most people still feeling the effects of the recession, one area that has now become a significant part of financial planning for those in employment is income insurance protection. Studies have shown that while most households have insurance cover for most common insurance policies such as mortgage or vehicle insurance, most do not have cover for their income in the event that they are unable to work for a period of time.
What is income insurance protection and what are its benefits?
Income insurance protection policies typically provide cover if for some reason you are unable to work and there are many benefits to taking out such a policy. Comprehensive income protection policies will generally provide cover for a percentage of your earnings in the event of accidents, sickness, and unemployment, while simpler plans may cover only one of these. Either way, the benefits of taking cover for your income include a guaranteed tax-free percentage of your salary, and the ability to choose the length of your protection to suit your financial situation.
Other benefits include monthly payments while you are unable to work, peace of mind, and financial security at a time when you are most vulnerable to falling behind your financial obligations and living costs.
What does income insurance protection cover?
Income insurance protection cover varies between policies depending on whether you choose short-term cover or long term. A short-term policy will typically provide cover for anything between six months and a year until you are ready to go back to work. Long term income protection insurance cover is designed to provide cover in the event of long term illness and can last until the age of retirement, or until the time you are able to return to employment.
Income insurance policies with lower premiums will have longer periods before they start paying out, so prospective policy holders have to strike a balance between how long their employer will continue to pay them while they are away, and the beginning of income insurance payments.
How much cover should I take out?
How much cover you will need depends on your financial circumstances. If your finances are already at starching point, or if you have dependants or are self-employed, income protection can be a good investment to help you keep up with your outgoings should you be unable to work for a period of time. However, while searching for the best cover, it may also be worth considering other avenues of ensuring financial stability such as having your own savings to complement your income insurance protection pay outs.
While income protection insurance will not cover redundancies unless specifically stated, getting cover in case you are unable to work and earn your regular salary makes good sense. With due care and research to ensure you know everything you are covered for as well as what you are not insured for, it is time income protection took on the same, if not more, importance as other common insurance types.