When you sign up for income protection insurance you are in fact signing up for an insurance policy that safeguards your income in the event of disability or sickness. You are insured against everything that makes it difficult for you to earn your regular income. This is why this type of insurance is also referred to as permanent health insurance. That said the overall amount that you are allowed to claim will not actually replace the every same amount of cash that you were previously earning prior to having to cease work. Most insurance companies will give you around half or two thirds of what you were earning prior to tax from your conventional job. This is mainly because some of the money is taken for things like state benefits that you claim later on as well as the income that you get from a policy is tax free.
The other very important thing you should be aware of is the fact that you cannot claim income protection payments right away if you become disabled or ill. There is a minimum wait period of around four weeks but at times payments will start up to around two years after you’ve ceased work. This is mainly because there is a good chance that you will not need the money right away as your employer may pay for a lot of your expenses and you can claim statutory sick pay which is good for 28 weeks.
What to know prior to taking out income protection insurance?
Prior to even considering income protection insurance you need to ask yourself a few important questions:
- Do you already get adequate income protection from your work? There are some employers that offer this as an added benefit. Check your employment contract, personnel department or handbook for details on this.
- You need to check if you have some type of illness insurance which is combined with another policy or with a mortgage that also covers serious illnesses.
- Check to see if you have a sizable savings that can be used instead of just insurance. However, think very carefully about if you want to rely on all your savings for support. You’ll need to consider saving enough money for an extended period of ill health, plus there could be other emergencies that may use up your savings.
What you should find out?
The first thing you should do prior to signing the dotted line for any type of insurance is to read the policy carefully. Make sure it meets your needs perfectly. If not mentioned in the policy then ask the insurer exactly what you can claim for, and when you can claim, also how much will you get. Generally speaking policy documents need to be drafted in plain, easy to read English but if you still don’t understand something ask for clarification prior to signing it.
Are there exclusions?
Illness insurance policies will mostly never cover all types of illness. There are some cases in which certain illnesses may not be covered if a member of your family has had this illness before. These are often referred to as pre-existing medical conditions in policies. So, most insurers will take a look at your family medical history, but there are some policies that will cover existing conditions, you will need to check and find out which ones do. If there is a family medical history but with conditions attached, then these need to be explained to you by the insurer prior to signing the policy.
The other very important aspect of this insurance is to find out if you will be covered if you do some other type of work than what you currently do. There are some income protection insurance policies that state that people cannot make a claim if they stop being able to do their job but they can still do other types of work. For instance, if you become wheel chair ridden for the next two years because of a construction accident you may not be able to work as a construction worker but you can still make an income as a drafter at an office. So, you should check your insurance policy to see if it states this.
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