Whether you’re living the dream by working for yourself or climbing your way up the corporate ladder, it’s important that you have a financial cushion in case the unexpected happens. Just like putting on sunscreen every day or wearing your seatbelt in the car, putting those safeguards in place can make those unanticipated emergencies a little less stressful.
We never want to think about dealing with an illness or injury, particularly one that could keep us out of work for weeks, or even months, at a time. But being prepared for any eventuality means there’s one less thing to worry about as you concentrate on your recovery.
But where can you find that peace of mind when you have so many other responsibilities and commitments? That’s where private income protection insurance can help. We’ll walk you through everything you need to know about this type of insurance, how it can benefit you, and what you need to know when looking for a new policy.
What is private income insurance?
Otherwise known as income protection insurance, this type of insurance policy is there to replace some of your income and ensure that you can stay on top of your regular expenses if you’re not able to earn your usual salary or wage. They’re typically long-term policies, meaning that they’ll cover you for illnesses or injuries that last longer than three months.
When you take out a policy, you’ll pay a monthly or annual premium (that’s the money that you send to the provider to maintain the plan) and, if you ever need to make a claim, you’ll then receive a direct monthly payout that you can use to pay for your essential living needs.
Hopefully, you’ll never have to use it, but if you do, income protection insurance is there to make sure that you and your dependents can keep a roof over your heads and food on the table when your regular source of income isn’t an option.
Before you sign on the dotted line for any insurance policy, it’s helpful to understand different disability insurance definitions. Most standard policies will cover serious illnesses and injuries like:
- Fractures and sprains
- Mental health issues
- Musculoskeletal disorders
However, every provider will have their own rules regarding what illnesses or injuries qualify as a disability and allow you to claim benefits, so make sure you read the fine print.
How does it work when you make a claim?
Once you submit a claim to your provider and your claim has been approved, you’ll receive benefits for the length of your policy or until you’re able to return to work. You can use those funds to cover any of your daily living expenses, from childcare and mortgage or rent payments to medical bills, groceries, and utility costs.
Unlike policies that you may have through an employer, a private plan will often have a clause that allows you to still receive payouts if you’re unable to work in your chosen occupation but could possibly work in another way, known as own-occupation insurance. Make sure this is a feature of your policy before moving ahead.
The average policy will payout between 60% and 80% of your after-tax income and you also won’t be able to take out multiple policies with different providers to get you to 100%, so we’d always recommend having some extra cash in savings to make up the rest.
Why you should consider getting income protection insurance
So...is income protection insurance worth it? Well, the short answer is “yes!” Here’s why.
Take advantage of your youth
If you’re young and healthy, it can be easy to disregard this type of insurance policy and file it away under “things I need to look at when I’m approaching middle age.” But given that most Millenials and Gen Z’ers only have quick access to less than $10,000 and student loan debt into the tens, or even hundreds, of thousands of dollars, thinking through your backup plan sooner rather than later is the sensible option.
You’re more likely to benefit from cheaper premiums and better coverage while you’re young, as the insurance provider will see you as a less risky candidate for making a claim at this point in your life. So take advantage while you can and make sure that your income is protected from a possible career-pausing illness or injury.
Healthcare won’t cover everything
You might be wondering why you need any supplemental insurance if you already have a medical policy through your employer or the marketplace. While your health insurance is there to specifically support your medical needs, an income protection insurance plan can fill in the rest of the gaps.
Healthcare plan benefits are paid directly to your doctors and medical team to facilitate your care, but you’ll still be responsible for paying your regular day-to-day expenses yourself. If you’re not able to work and earn a regular wage, where is that money going to come from? That’s where private income protection insurance can help, by providing a financial safety net for those everyday needs.
It’s also important to remember that, even if you have excellent healthcare coverage, some of your medical expenses may not be covered until you hit your deductible and even, in some cases, after that amount has been met. Income protection insurance benefits can be used to make up the difference to ensure that your medical bills are paid off.
Over 60% of all bankruptcy cases in the US are caused by medical bills, even for those who are insured. Take away your ability to work and lose possibly your family’s only source of income as well and you could soon be facing a life-altering financial situation. Planning ahead with an insurance policy helps to minimize the risk to your family’s future.
It can be quick and simple to get a policy
Most insurance providers will require applicants to provide their entire backstory in health records and personal data, including up-to-date medical tests, to decide how risky of a candidate you are. If a provider thinks that it’s likely that you’ll make a claim (like if you work in a dangerous occupation or have a complicated medical history), they could significantly increase your monthly cost or not cover you at all.
But with providers like Asteya, there are no doctor appointments or blood tests to work through, no matter your age or medical background. Our “no exam” coverage means that you’ll be approved much faster than a traditional income protection insurance policy. All you need to do is answer a few questions on our application form and you’re all set.
How much does private income insurance cost?
Income protection insurance costs will vary based on a number of different factors, like what kind of job you have and the lifestyle you normally lead. A 25-year-old video game enthusiast who goes for a run each morning will likely pay a lot less than a 45-year-old who spends their weekends jumping out of planes or racing cars. Any pre-existing health issues will likely be excluded from your policy coverage but can impact how risky you’re perceived in the eyes of a provider.
But generally speaking, you should expect to pay around 1% to 6% of your annual income, factoring in that this will increase as you get older. The good news is that your payments aren’t taxable, since you’re paying for the policy with your after-tax income. That also means that any payouts you receive if you make a claim will be tax-free too, so every single penny will be yours to do with as you please. That’s a win-win if you ask us!
Make decisions today to support your future
We never know what’s around the corner, but taking a few steps to help protect our finances should the unexpected happen is a smart move, no matter your age or life situation.
One in four people are forced to stop work because of a health or wellness issue, so the stats really aren’t on our side when it comes to “but it’ll never happen to me” thinking. Is it worth taking that risk?
Apply today for a “no exam” income protection insurance policy with Asteya and take a deep breath knowing that, whatever life throws at you, we’ve got you covered.