A common sense approach many people take to life is to live by the mantra of ‘Hope for the best, but prepare for the worst’. Wise words indeed, and ones that anybody who relies on regular employment to exist and maintain their lifestyle would be well-advised to heed. Here’s where income protection comes in.
One powerful financial tool we can employ to protect ourselves against the adverse consequences of sudden changes in circumstances is income protection insurance. It offers a crucial safety net for maintaining financial stability when unexpected health issues or accidents disrupt our ability to earn money. This article takes a closer look at this still under-appreciated form of self-protection.
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How Does Income Protection Insurance Work?
Income protection insurance operates around the simple concept that we must replace our regular income if it is unexpectedly unavailable. Although most claims involve people experiencing sickness or injury or sickness, a number of other scenarios are also covered. As we might expect, successful claims require supporting evidence, which, in the case of medical issues, is an official report that validates the condition’s existence, confirming that it prevents the policyholder from working.
Who Os Eligible For Income Protection Insurance?
Eligibility for income protection insurance typically includes the following requirements:
- Legal permanent residents/naturalised citizens only
- ‘Gainful’ employment/self-employment
A term that refers to ‘legitimate positions that provide steady, predictable income’. Although not specified, this is assumed to be enough for individuals to house, clothe, and feed themselves independently. This employment should be performed for 20-30 hours per week, depending on its nature.
18 To 59 Years Of Age
Although these industry-standard age restrictions apply, it is essential to scrutinise any potential policy for caveats or exclusions. For example, applicants considered by the providers to be engaged in ‘high-risk’ occupations may experience additional costs and more restrictive conditions.
Exclusions From Making An Income Protection Insurance Claim
As with all forms of insurance, certain caveats and conditions prevent policyholders from making a claim. In the case of income protection insurance, the following circumstances will invalidate any claim:
Pregnancy And Childbirth
Any unpaid absences related to pregnancy and childbirth, including medical complications and maternity leave, are not covered by standard income protection insurance policies.
Criminal Behaviour
No remuneration will be provided if the policyholder engages in criminal activity that affects their regular income. This includes absences due to recovery from injuries sustained during criminal behaviour or periods of incarceration.
Suspension (Any Reason)
No matter the reason for unpaid suspension from duties, standard income protection insurance will not cover the lost income.
Self-Harm
Income protection insurance does not cover self-inflicted injuries or sickness that cause time away from work.
Acts Of War
A condition unlikely to affect most policyholders, but absences from work due to acts of war are not eligible for compensation.
Conclusion: Is Income Protection Insurance Essential?
Each of us must assess our circumstances and how seriously the loss of income would affect us. A startling number of people live just one paycheck from financial ruin and simply cannot afford to lose that income, even briefly. The risk of lost income must be weighed against the cost of income protection insurance premiums.
It is safe to say that for individuals with a more stable financial situation, who rely on employment-earned income to survive, this specific type of insurance is a ‘must-have’. The additional expense of the premiums will not be felt too severely, and the benefits when needing to make a claim are undeniable.
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