What You Should Know About Income Protection Insurance

When people are unable to work because of an illness or injury, income protection insurance will provide them with a reliable earning stream. The benefits are paid on a monthly basis, and as a rule, if an individual is employed, the amount of cover provided by the policy is usually limited to 75% of that person’s gross earnings.

Cover Available

In some cases, the related benefit period can range from 2 or 5 years to age 65. Before a claim can be paid, the purchaser must select a waiting period, which is usually 14, 30 or 90 days, and it can also be adjusted to keep up with inflation. Many people feel that this is the most essential type of cover they can buy since they rely on their salary to maintain their lifestyle, accumulate wealth and prepare for retirement. Income protection insurance is not as limited as standard trauma benefits, and the cover is more extensive, especially in regard to a temporary illness, such as a back-injury or an illness that is stress-related.

The amount of cover people can purchase is generally limited by the following factors:
- If they are self-employed, 75% of the earnings their business generates, minus the various expenses they incur.
- If they reach a higher salary level, such as $250,000, a lower percentage of their annual earnings may apply, and their insurer may also ask for documentation of their earnings, including tax returns for the previous year.

The income protection insurance people purchase will provide them with cover 24 hours a day, no matter where they are, and regardless of the illness or injury they suffer. In addition, if they fully recover and are then able to return to work, the monthly benefit will be discontinued at that time.

Premiums vary greatly within the industry, and they are generally based on the amount of cover customers want to purchase, their age, their salary, their occupation, the state of their health and preexisting conditions, and if they smoke. On average, this will cost approximately one week of their annual salary, and in most cases, this expense is tax-deductible. As a result, the after-tax cost of the premium makes it quite affordable for the average working person.

Note also that if the purchaser wishes, a policy can often be extended so that it includes trauma benefits, death benefits and lump-sum benefits for those who are permanently disabled.