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While a worker may collect some money in the way of sick pay from an employer if one has a salaried job or workers compensation from an employer who has taken out workers insurance, this will hardly be enough if one fell ill or suffered a serious injury. This is why income protection insurance is important. It will pay not less than 75 percent of all of ones gross income and that includes not only salary or wages but also any other benefits one had before the disabling accident or injury.
The actual monthly amount that will be paid out is arrived at when one takes out the policy, which is called an agreed value per month policy. Alternatively, the payout can be calculated depending on the income one was earning before making the claim, which is often referred to as an indemnity policy. These cost less but they represent a higher risk because if income has fallen when the claim is being made, one can receive a payout that is also low.
A general rule-of-thumb, the cover pays out two percent of the annual salary. The rate may seem low but it does provide adequate cover especially with an agreed value per month policy.
With this cover, it is important to note that premiums go up as risk goes up. If one is older, has existing health conditions or works in a high risk environment, the premium will be higher. This is the case with all forms of insurance packages as the insurer seeks to cover the higher risk that they perceive.
Another factor to take note of is that there is normally a waiting period between when a claim is made and receiving the first payment. The longer this waiting period is, the less the premium payable but it is not advisable to accept a long waiting period to save some money on the premiums. Also, the premiums paid out are tax deductible but the monthly payout received is taxed.
All these factors vary greatly from one insurance firm to another. Be very careful when going over the clauses so you know exactly what you are signing for. For example, some insurance firms will define disability as the situation where you are unable to do the work before being injured but will claim that you can do other types of work and are therefore not disabled.
Others define disability as not being able to work at all. Also, with some insurance firms, the policies come with a guarantee of continuity while others do not but will be renewed if the insurer is willing. They may for example, refuse to renew if a policy holder develops a condition that could lead to disability later.
All in all, income protection Insurance is crucial for people with dependents and financial liabilities. Do go over every word and clause with a fine tooth comb before you sign up to ensure that you get exactly the cover that you need and can count on.
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