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Having income protection insurance is a specific insurance policy that is designed to provide the policyholder a steady income should the insured be disabled and unable to continue working.

Benefits of Income Protection Insurance

When you are employed you pay into the fund through automatic deductions from your paycheck; however, if you should be self-employed you run a very thin line when it comes to financial risk should you become disabled and you can’t continue your business. Even if business is down for a short time it can cause a detrimental financial setback.

Income protection insurance could be invaluable to the self-employed business owner should the worst happen as you’re only able to get disability benefits should you pay into the fund which allows an employer to offer disability benefits to their employees.

The one thing to consider is this only refers to a disability that is temporary in nature. There is a Government disability benefit, Social Security Disability for the United States, which will provide a monthly income to those a permanent disability. This; however, doesn’t extend to anyone that is suffering from only a temporary disability setback and hasn’t paid into a disability fund.

Payments and Policy Types

An income protection policy is going to provide a monthly payment which is known as indemnification; basically meaning that you’ll receive compensation from the policy should you ever need to use it.

The payout is usually done as a fixed and set percentage of the policyholder’s income. There are also riders that can be purchased for the policy that will cover specifically named financial agreements; such as:

• Car loans
• Credit cards
• Mortgages
• Others

By purchasing a rider of this nature it is going to suspend payments without penalty until you are no longer disabled. There is also the option of the income protection insurance policy to cover your health care coverage as well.

Protection Types

When you choose to purchase the policy you’ll be given two choices. The first one is the income protection that will cover you should you be disabled and unable to perform any type of work. On the other hand you can purchase a policy that will provide you the insurance benefits should you no longer be able to work in your chosen occupation.

The people that choose the later are usually high net worth individuals with lucrative jobs that would suffer a substantial loss of income should work in that field/job no longer be available. The setback to this type of policy is that it is going to be quite a bit more expensive as the insurer prefers that the insured take on any type of work should they be able to.

Just like the disability benefits that people are more aware of income protection insurance does have an elimination period. The elimination period is a specific length of time that benefits will not be provided.

Cost Reduction and Considerations

Just like with an auto or homeowner’s policy, the higher the deductible the lower the policy is going to be and with the insurance protection policy the larger the elimination period gap the cheaper the policy is going to be for your income protection.

Even though you want to have the cheapest policy available as all of us want to spend our money on other things or save it you must consider the following:

How long can you really go without a paycheck should the worst happen and you find yourself unable to work?

If you should have a lot of savings or funds options to draw on and you can make it securely by being able to endure a six month income gap than this is a large elimination period that is good for you. Should you be the opposite of this and have very limited savings and a lot of expenses you should consider more like a 30 to 60 day elimination period.

Proof of Disability

Before any income protection policy will pay out benefits the insured will have the burden to prove that they are disabled and that it is included in the purchased policy. Pre-existing conditions do not have coverage as well as if your disability is caused by personal negligence. The broader the stroke of defining what constitutes a ‘disability’ the higher the premium on the policy is going to be.