When examining the most common causes of stress and anxiety in the modern world, concern about financial matters is seldom far from the top of the list. Very few of us could envisage surviving and thriving for long without our primary source of income, and financial insecurity has given sleepless nights to more of us than we’d like to admit. This article examines the fundamental features of income protection insurance, how it operates as a critical financial safety net, and the factors to assess when considering coverage.
What is Income Protection Insurance?
The easiest way to think of income protection insurance is as a financial safety net that catches you if you are unable to receive your regular income due to one of the reasons covered by the policy’s terms and conditions (which we will discuss later). The most common reasons behind successful claims involve injury or sickness, when an official medical report will be required to confirm the applicant’s status.
Although policies and their conditions vary, standard income protection insurance typically replaces up to 90% of your (pre-tax) income for the first six months. During the following six months, financial coverage usually drops to around 70%for a period specified in the policy’s terms and conditions.
Income Protection: Conditions
Each private insurance provider must comply with strict government regulations, consumer protection laws, and industry standards. However, each provider sets their own eligibility criteria, policy terms, and premium rates. Some typical requirements require successful applicants to be:
Income Protection Insurance: Conditions and Exemptions
Although it is essential to clarify with your potential providers directly, most income protection policies will have the following caveats that negate any claim:
Do I need Income Protection Insurance?
Whether you need income protection insurance depends on your personal circumstances. Some factors to consider include:
Freelancers, business owners, and contractors can experience a devastating financial impact if they lose their income due to illness or injury.
Individuals with mortgages, rent responsibilities, or financial dependents should consider protecting themselves.
Individuals with substantial savings to cover expenses may not need income protection; those without must think carefully.
People with physically demanding jobs or activities and lifestyles with inherently higher health risks should consider income protection insurance.
Eligibility for benefits or workers’ compensation is a cornerstone of any insurance decision.
Income Protection Insurance: Final Thoughts
Insurance is one of those curious purchases in life that we hope we will never have to use. In a world where it seems we need insurance policies to cover every aspect of our lives, it can be challenging to prioritise those policies we cannot afford to neglect. We hope this article has highlighted the importance of income protection insurance for all working individuals and families that rely on a primary source of income to maintain their standard of living.
