We insure our homes, our cars, our pets and our lives. We also need to insure our income!
If you are working for a living, then you should seriously consider insuring the income you receive. Income protection is a very simple insurance: You purchase an insurance policy that pays you a benefit if you become unable to work due to illness or injury only.
That said, there are some variations in the type of cover that you can take out. Below, we discuss some of the most common variations and what they mean. Remember, though, our job is to help you put these pieces together, so don’t worry if it all sounds a little complicated. Just talk to us about it!
The term of a policy is the length of time that it will pay a benefit. You can have a policy that pays for a set period of time, such as for two or five years. Or you can choose a policy that pays until you reach a certain age, such as 60, 65 or (in relatively rare cases) 70.
For pretty obvious reasons, longer-term policies tend to have higher premiums. (The insurer faces a larger payout if you make a claim).
You can usually choose how long you will wait before you start receiving insurance payments. That is, how many days after you stop working due to illness or injury that you will wait before you start receiving benefits. (Actually, if you have paid sick leave from your employer, the insurance will not kick in until a certain period of time after you run out of sick leave).
A common waiting period is 30 days. This is sometimes shortened to as little as 14 days or extended to as much as 60, 90, 180, 360 or even 720 days.
Most illnesses or injuries are relatively short-lived. This means that the premiums for policies with longer waiting periods (which means that you are less likely to make a claim at all) are usually lower.
The amount of the premium is not the only consideration, however. The most important consideration is how long you and/or your family could cope if you are off work. If you have a fair bit saved, then a longer waiting period might make sense. But if you would really suffer even from a short period off work, the shorter waiting period might be needed.
Remember: the point of insurance is to receive a payment when you need it. This is why the premium is not the only thing you should consider. There is no point in saving money on your premium if that means you do not have the cover you actually need.
When you take out an insurance policy, you must give the insurer a full medical history. This lets the insurer know if there are any pre-existing illnesses or injuries that may affect your ability to generate income in the future. Once they know your history, an insurer may decide to offer you a policy in which certain types of illness are excluded. Alternatively, if they think that there is a generally higher possibility that you will make a claim, they may impose a loading which increases the premium you pay.
For example, if you have a history of cancer the insurer may place an exclusion that says that they will not pay if you are unable to work due a to a recurrence of that illness. Or, they may ask for a higher premium but allow that type of cancer to remain as a potential cause of not working. Either way, the insurer is basically trying to adjust the policy to account for the increased likelihood of making a claim.
As we say above, insuring your income is vital if you would suffer financially by becoming sick and unable to work. If you would like to know more please don’t hesitate to get in touch.
