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Income Protection Insurance

 

shutterstock_133898864God forbid if you are forced to take time off from work due to any illness or injury. Can you still keep up with your bills if this happened to you? Here’s where income protection insurance comes into play and helps you to cope financially while you recover. It ensures a regular cash flow in your time of need. Income protection premiums are tax deductible and are generally 3% of your annual income. People often get puzzled between income protection and their workers compensation policy. But unlike income protection, workers compensation provides compensation if an accident occurs at work and provides no cover for an illness not directly related to work.

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When you take out a policy, you are offered to structure your premium payments either by stepped premium or level premium.

  • Stepped premium: This type of premium provides you short term benefits like paying a lower premium for a limited period of time and then paying a higher premium for a longer duration until your policy ends. They are best recommended to those buyers who want to avail the benefits for a short time.
  • Level premium: This premium policy allows you to pay a balanced amount for a longer period of time and enjoy long term benefits. This type of premium structure is best suited to those buyers who want to keep aside the same amount every month for premiums, do not favour increasing premiums as they age and who want to know in advance what amount they have to pay. It provides stability and the ability to the buyer to manage their premium.

Important consideration before going ahead: Buyers are entitled to choose the premium payment plans at the time of applying for the policy and it entirely depends on their discretion which plan to choose. Check the product disclosure statement to know how much you have to pay towards your premium. This legal document elaborates about the plan, payment structure and additional fees, if any. Some insurers also give you an option of changing the premium payment plan later. So research and know the policies inside and out before giving the green signal to any of the plans.

When the policy gets active: In other words, when do the payments start? Normally you have to serve the waiting period. This is the period for which no benefit will be paid once you take time off from work due to illness. The length of the waiting period is decided by you during commencement of the policy. It has an inverse relationship like the shorter the waiting period, the higher the premium. It basically means how long you can afford yourself before you need insurance assistance. The most common waiting time option is a period of 30 days.

Some insurers also offer accident benefit for an additional premium. This type of benefit does not wait for any waiting period. The payment starts right from the day you are unable to work due to accident. Normally trade people and self-employed opt for this option.