Designed to provide coverage if someone loses the ability to work and earn a living, income protection insurance is a form of insurance coverage that can be your safeguard when your standard source of income is in jeopardy.
With the flexibility to choose how long you want your income insurance to cover your expenses and a customized plan for you, income insurance has been instrumental in helping people sustain their living if they lose the physical ability to earn a living.
This article will help you understand how long income protection lasts and how each type of income insurance works so that you can protect your loved ones in difficult times with the necessary coverage.
Before we begin, let’s first explore what income insurance is.
What is income insurance?
Income insurance is a coverage plan that helps you with a monthly benefit to meet your financial needs if you lose the physical capability to work again. There are two types of income insurance that one can choose from. These are sickness and injury disability income insurance and permanent disability income insurance.
While the former is applicable if you temporarily lose the ability to work, the latter (permanent disability income insurance) covers your expenses until age 65 if you experience permanent disability to work due to an illness or fatal injury.
Now let's address how long income protection lasts and the factors determining the coverage period. Let’s take a look.
How Long does income protection coverage last?
How long an income insurance coverage will last primarily depends on two factors. These are the type of coverage you have chosen and the benefit period you have chosen within that category.
If you choose sickness and injury disability income insurance, you can receive coverage for two to five years, depending on the severity of your condition. Within this period, if you retrieve the ability to work again, the benefit period will be terminated at that point in time.
On the other hand, if you opt for permanent disability income insurance, you can choose to be covered till the age of 65 or before, 65 being the highest age bracket. Most people choose to be covered till the age of 65, as that is the age of retirement, and post-retirement, you no longer need to work, which nullifies the terms and conditions of income insurance. The only thing to consider here is that the longer your benefit period or the period you wish to stay insured, the higher the premium rates. Hence, choosing a benefit rate that is economical for you is ideal.
Now that we have understood how the duration of income protection coverage works, we will help you understand three crucial factors of income insurance that play a significant role in determining the potential a plan carries for you. We have discussed the benefit period shortly; we will look into it now with two other important factors.
Top three factors you must know about before applying for income insurance.
1. Sum insured
The sum insured refers to the coverage amount you wish to receive every month during the tenure of the insurance protection plan. The higher the premium, the more the coverage amount. However, it is ideal to opt for coverage that helps you meet your monthly necessities and clear your debts or financial commitments, so you can pay the premium without causing a dent in your savings.
As income insurance plans are high on flexibility, you can also choose a payment term that is feasible for you. For example, if your salary increases when you start paying for the claim, your income insurance payments will also increase accordingly. As a result, if your income is variable, your insurance payments will be directly proportional to your average annual earnings per occupation.
Alternatively, you can choose an insurance amount that is a percentage of a fixed amount. This way, even if your income is variable from year to year, it won’t aggravate your premium rates, and you will receive coverage accordingly.
2. Benefit period
The benefit period refers to the timeframe you wish to stay insured. As discussed, the longer the benefit period, the higher the premiums. Some insurers offer partial disability income insurance, where you can opt for working with limited capability with a reduced coverage amount. However, this is not always the case.
Check with your insurers’ plans and carefully consider the benefit period as it determines the timeframe you will be insured. Once the coverage ends, you must have the means to sustain a living and look after your loved ones.
3. Waiting period
Another important determining factor that decides the coverage amount is the waiting period. This is the period you are willing to wait for your claim to be sanctioned and the insurance coverage to come through. Choosing a shorter waiting period affects your premium rates, making them higher than a more extended one.
Therefore, to choose a waiting period that favors you, there are certain factors that you must consider:
The number of days you can survive on sick pay or savings and increase your waiting period accordingly to reduce the premium rate.
If you are a business owner or self-employed, you might require a shorter waiting period as you will not have a backup source of income. Hence, choose the waiting period accordingly in this case, considering the premium rates.
Now that we have discussed the nuances and essential criteria of income protection insurance let’s look at the details. Here are some factors you should know about income protection insurance to make the most of this coverage model.
Income protection: crucial factors you must discuss with your insurer
Underwriting is at the heart of determining the coverage for an income insurance policy. This involves insurance agents understanding the policyholders’ physical and financial condition by asking different questions. After understanding the underwriting process, insurance agents finalize the coverage amount.
Two types of underwriting are usually involved, based on medical and financial grounds. Insurance agents analyze how big of a risk you are from a medical perspective and your current financial status to evaluate the coverage you are eligible for.
2. Policy exclusions
This refers to conditions that will not be included in your coverage plan. Insurers usually exclude certain conditions that can lead to unreasonable risks and try to keep the premium rates affordable. For instance, a smoker or a drug addict is prone to certain medical conditions that will be excluded from the cause.
Insurance agents also eliminate medical conditions you might be at a high risk of acquiring or currently suffering from. To make the most of your income insurance, you must peruse the policy documents carefully. Your insurance agent must also inform you about the exclusions added after policy assessment so that you have complete knowledge of the policy you are signing up for.
3. Choosing the term carefully
The term period you choose will directly impact your standard of living if you lose your job and take coverage from an insurer. Many of us have debts and mortgages to clear off through monthly payments. These are expenses that continue to incur, irrespective of our circumstances.
You can choose a term period that matches your mortgage term so that you are assured that the payments will be made on time and you won’t be indebted. Alternatively, if you wish to use the benefit to meet your monthly expenses, you can choose a shorter term until you can get back to work or figure out how to get back on your feet.
4. Policy cancellation terms
If you apply for income protection insurance, you can cancel your policy anytime. Usually, the policy gets terminated when the policyholder can resume work or reaches the maximum term of the insurance plan; however, you can cancel it at any time and won’t be required to pay monthly premiums.
However, it is wise to clarify the cancellation terms and the other pointers discussed in this section with your financial advisor or insurance agent before signing up for the claim to ensure everything is clear.
Apply for income protection insurance and protect your income source at all times!
We hope this article helps you understand how income protection insurance works and enables you to safeguard your finances. At the same time, you have time and are at a lesser risk of acquiring a medical condition. Applying for insurance at a younger age reduces the premium rate and gives you leverage to apply for coverage with increased benefits.
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