Our Sites:
What would you do if you couldn't work? Unfortunately, not many of us can look into a crystal ball and predict the future, so income protection insurance can be handy - it can provide peace of mind, especially as our financial committments increase. There are many different levels of cover though so which is the best fit for your needs?
Disability insurance and income protection
Income protection insurance, also known as disability insurance or total or permanent disability insurance, can be particularly worthwhile if you have a mortgage, margin loan or dependents to look out for. Unfortunately, the bills will keep on coming even in the event of an accident - think of your credit card, mortgage and weekly grocery bills. Having money coming in as a result of your insurance cover can be a lifeline. If you are struck down as a result of illness or misadventure your insurance company will pay you a wage till you are able to go back to work or forever... depending on the policy you have. You may be off work for several months due to an illness or accident, or permanently. In effect, income protection insurance it protects your ability to earn. Did you know that once you turn 35 you are said to be 10 times more likely to gain a disability than die.
There are different levels of cover - for just permanent disabilty, for temporary or permanent disability, for total and permanent disability. Premiums are generally determined by your age, sex, health, whether you're a smoker, what you do for a crust, how long you're prepared to wait for your first payment and the length you want the benefit to last (for example, one that pays just for two years or until you're 65). White collar workers and professionals are generally charged lower premiums than the blue collar crowd, as blue collar workers tend to be more injury-prone and work in more dangerous workplaces.
TPD insurance pay outs
Most TDP insurnace policies will pay up to 75 percent of your net income in the event of a claim. This is either for a limited period of, say, three years, or until you turn 65. The length of time you receive a benefit for varies depending on the policy type you choose to take out, which is generally determined by how much you are prepared to pay.
Some policies pay an agreed value per month. Others offer indemnity cover, with the income determined at the time the claim is made. This can be a cheaper but riskier option - particularly, if you intend to "down-size" in future - in lifestyle and income. If your income drops then the payout will reflect your new income, not the benefit you have been paying.
It is worth noting that you will have to wait a certain amount of time after gaining a disability before receiving benefits. The waiting period can range from a week to a year, depending upon what time you nominate when applying for a policy. Common waiting periods are between 14 and 28 days. As the waiting period increases, the policy costs generally decrease.
While income protection insurance can be expensive, there is an upside: the premiums you pay are tax deductible. (Check with your accountant to find out how much you can claim back). For people who are heavily committed it can provide peace of mind.