Did you know that 40 percent of Americans live paycheck-to-paycheck? Most individuals and families would struggle to meet their regular bills if they suddenly lost their income.
Fortunately, there are things that you can do to protect yourself from losing your income. Income protection insurance policies help you out in the unfortunate event that you lose your job.
Keep reading for an overview of what income protection insurance is and why you should consider taking out a policy.
What is Income Protection Insurance?
There are many different types of disability insurance on the market. Income protection insurance is a specialized product that will pay tax-free income if you are injured or sick and can no longer work. The goal is to bridge the gap until you are able to return to work.
Stress-related injuries, as well as serious illnesses like cancer, would qualify you for payments. Payments are most commonly made monthly, and will continue until you either die, retire, or return to work.
Some policies also offer “stepped” benefits when you have coverage offered by your employer. Stepped coverage will provide a smaller payment while your employer’s payments are coming in, and will increase once they stop.
Other policies will have their payouts tied to inflation. Their payouts will increase by a small percentage each year to keep up with rising prices. However, their premiums will increase as time passes as well.
Why Consider Income Protection Insurance?
Income protection insurance is ideal for self-employed people since you likely won’t have access to employer benefits. Additionally, anyone who has little savings, many recurring bills, or dependents should consider this type of policy.
An individual income protection insurance policy will pay above what the government does for disability. This can help you maintain your standard of living.
What to Remember About Income Protection Insurance
There are two main things to remember when looking at different income protection insurance policies. The first is that these policies will rarely cover your previous income.
However, they will cover up to a specified percentage of your previous income. The tax-free nature of these policies can mean that your take-home pay is comparable.
The second thing to remember is that payments from these types of policies won’t kick in as soon as you stop working. Most policies will have a determined period of time where they will not pay you, usually ranging from a few weeks to a year.
Keep in mind that choosing a longer deferral period can help keep your monthly premiums low for this type of insurance policy.
Protect Your Financial Health.
Having an income protection insurance policy can help protect you against financial shocks. Changes in your employment are not always within your control. These types of policies can give you peace of mind that your lifestyle and dependents are not under threat if you can no longer work.
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