So, you are thinking about taking out an income protection insurance policy, but you aren’t sure if it’s the right option for you? Before deciding whether to take out a policy, it is important to understand what advantages income protection insurance can offer you in addition to some of the drawbacks that it has.
Summary of Income Protection Insurance
The purpose of income protection insurance is to protect you if you can no longer work due to a medium to long-term illness, injury, or disability. If you can no longer work due to one of these reasons, your insurer will send you regular cash payments to replace your lost income. These payments would allow you to stay on top of your expenses without needing to take out loans.
Pros of Income Protection Insurance
Income protection insurance offers you peace of mind. Knowing that you can still pay for your regular expenses and provide for your family despite not being able to work can be a significant benefit for individuals. The policy would allow you not to have to worry about what would happen if the unexpected occurs.
The policy can protect you in both the short-term and long-term because income protection insurance allows you to choose the term duration. Therefore, if you currently have debt that you are worried about repaying if you can no longer work, you can opt for a policy with a shorter term duration. Conversely, if you believe that your lifestyle requires protection over a longer period, you can choose to take out a long-term protection policy.
Income protection insurance can protect you if you sustain a non-work-related injury if there are no policy restrictions against these types of injuries. Your work may provide you with benefits if you sustain a work-related injury but is unlikely to do so if you are injured outside of work.
Cons of Income Protection Insurance
Pre-existing conditions can negatively impact the premiums you would have to pay to take out an income protection insurance policy. Pre-existing medical conditions, gender, lifestyle, and occupational risks are all examples of factors that are likely to contribute to a higher premium amount for the policy.
The majority of income protection insurance policies will have a waiting period. This means that you would have to wait for a designated period before receiving the benefits of the policy. Therefore, you would have to rely on sick pay and/or savings to cover your day-to-day expenses if an injury prevented you from working.
The policy is also likely to have some exclusions that would affect whether you will receive payments after sustaining an injury or disability that prevents you from working. These exclusions may include involvement in illegal activities, injuring yourself on purpose, etc.
Understanding the pros and cons of income protection insurance can help you decide whether taking out a policy is the right decision for you.