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The Basics of Income Protection Benefits Explained
The most important aspect of an individual’s portfolio, but often not included in one’s portfolio. Income protection is truly a must-have in terms of key risk benefits.
Income protection is a long term insurance risk benefit which provides the insured individual with cover in the form of a monthly income calculated based on the individual’s actual income and which then pays out in the form of a monthly income if the individual is injured, ill or disabled and unable to work for at least 7 days or longer.
When applying for income protection or reviewing your current income protection benefits you need to consider the following:
Which period applies to the income protection benefit?
A 7-day waiting period is the most ideal as you will then be able to claim when unable to work for 7 days or longer due to injury, an illness or disability. But keep in mind, the shorter the waiting period the more expensive the benefit becomes.
Usually individuals apply for a 1-month waiting period as they still receive an income from their employer when booked off for up to a month.
A 1-month waiting period is the most common waiting period applied to this benefit. Unfortunately, not all occupations qualify for a 1-month waiting period due to the risk of insuring certain occupations with a 1-month waiting period being too high. These individuals are then subject to a 3-month waiting period. Meaning that the insured can only claim when unable to work for 3 months or longer.
Does the income protection benefit pay for temporary conditions, permanent conditions or both?
This is an extremely important aspect seeing as one should ideally have income protection in place which pays not only for permanent conditions but also temporary conditions.
Temporary conditions are health-related conditions which render you unable to work for a temporary period. Conditions temporary in nature. Conditions from which you can recover. Permanent conditions, however, are health-related conditions which render you unable to work permanently/for the rest of your life. Examples of these would be Paralysis, Dementia, Alzheimer’s Disease, Muscle Dystrophy etc.
These conditions are degenerative in nature and one usually cannot recover from them. In both these events, whether a condition is temporary or permanent, you need your income during the entire time you cannot work. Thus, one ought to have both temporary- and permanent income protection in place.
Until what age do you have the use of your income protection benefits?
Some insurers provide income protection cover only up to age 66. This means that you have the use of the benefit until you are 66 years old. The benefit then falls away. But the true detriment of this is that, should you be in-claim (receiving your disability income from your income protection benefit due to being permanently ill or disabled) before the age of 66, your income protection benefit will stop paying when you reach age 66.
You will then either be left destitute and without an income, or you will have to make do with the retirement provision that you have possibly managed to put in place. Some insurers, however, provide income protection benefits as Whole of Life benefits. This means that you have the use of the benefit throughout your lifetime and if you claim and your condition is permanent you will at least receive your income protection benefit payment for the rest of your life.
Instead of struggling financially at retirement age. Whole of Life income protection tends to be more expensive than income protection which falls away at age 66, but the extra expense is worth the increased premium in value.
Does your income protection benefit provide you with a payment as a % of your cover amount in the event that you are disabled/impaired but still able to work, just not as fully and completely as before the disability/impairment?
Some insurers only provide income protection benefit payments in the event that the insured individual is either temporarily or permanently completely unable to fulfil the duties of their occupation.
Other insurers at least pay out a % of the insured amount as a supplement income to the life insured when he/she suffers an injury or disability which affects their ability to perform the duties of their occupation, but does not necessarily leave them completely incapable of performing the duties of their occupation.
One ought to be covered, even if only to a certain extent, in both events. Once disabled/impaired, even if one can still function at work, lifestyle costs increase drastically due to the medical assistance/interventions usually required in terms of disability.