How Income Protection Insurance Works

How Income Protection Works – part 1

Income Protection is one of the most important insurances you can have. When you depend on your income to run the household, you can’t afford to lose it, as a result of an illness or accident. Income Protection has a number of different features and terminology that you need to understand to make sure that your policy is tailored just for you. The main features you need to know are:

Benefit period
Waiting period
Agreed Value v’s Indemnity
Extended v’s Basic

Let’s look at how the Benefit Period works

Benefit Period refers to how long you will be paid if you are on claim. The standard benefit periods offered are:

1 year
2 years
5 years
to age 55, 60, 65 or age 70

There are a number of reasons why there are different periods:

Your occupation is a major factor. High risk occupations where this is a greater chance of claiming such as heavy manual work are usually restricted to shorter benefit periods.
Retirement age. This is why there are plans which cease at age 55, 60, 65 and 70 – so that you can mirror your intended retirement age.
The other main reason is to give people choice and flexibility with price, as the shorter policies are generally cheaper.

Which benefit period is the best?

Generally, the longer the better. The longest you can afford and the longest you able to get based on your occupation. If you were to have a long term illness, a guaranteed income until you were 65 and had reached retirement age would provide you and your family with financial protection.