Income Protection Insurance
The purpose of any insurance is protection, in case of any mishap. Different insurances are aimed at different types of mishaps. Income Protection Insurance or IPI, is meant to protect policyholders against any deterioration in health, which leaves them debilitated, and therefore, incapable of working. This deterioration can be in form of either, illness or injury.
The amount of premiums that a policyholder has to pay depends on a number of factors, with the most important of them being length and coverage. Variation in these two leads to different types of packages. Therefore, it is always better to consider all the options available and decide according to your own need and affordability.
The most secure of the packages is the long-term income protection package. This package entitles the policy holder with benefits from day one and until death or return to work. This offers certainty, providing the policyholder with all relevant information, on the day of application. With no deferment period and high length and coverage, this type stands as the most expensive one. An alternative to this type is the short-term income protection package. This type does not insure the policy holder from the day of application, which was the case in the former type. Here, you get the terms of the policy after you claim the insurance. Also, it is only valid for a specific number of years, which could range from 1 to 5 years. Other such packages include guaranteed income protection and age-related income protection. The former involves fixed number of premiums throughout the policy term, while the latter entitles the policyholder with low payments at the, which eventually rise with age.
Different people have different types of jobs, need, affordability and funds saved for a rainy day. As a result, these people also have varying preferences. To address these preferences, there are numerous variations available in the packages. These are renewable, reviewable, increasing, and group IPI. All of these have a catch of their own, and thus, being suitable for different preferences. Here, choosing the right policy is vital. An inspection of alternative sources of income and a look into your financial needs and affordability, would provide you with a clear-cut idea of the amount, the extent and the cost of premium that you want.
The specific word that the insurance companies use is ‘incapacitated.’ This term, incapacity, has a wide spectrum of definitions. The definition you choose determines the cost of premiums that you pay. Interested individuals can choose from 4 main types, which are incapacity to carry out own occupation, suited occupation, any occupation and everyday activities. The definition of ‘own occupation’ means inability of a person to carry out his or her own job and thus, is more expensive than ‘any occupation’. The reason for this is varying probability – there is a higher chance for any individual to be incapable of carrying out his or her own job, than being not able to carry out any job.
Despite having to pay hefty premiums, hardly anyone cherish the idea of actually having to claim the insurance. However, that does not diminish its importance. Life does not offer any guarantees. One day we might walk into our workplace, spend an active day, and carry out all our responsibilities. Next day, we might not be able to do so. Health is unarguably man’s most important asset, but misfortune can take this away from us. Having IPIs insure our financial stability against such misfortune. It ensures that in case we are rendered unable to work, there is a back-up plan to fall upon. Having an IPI would protect the policyholder in the most unfortunate of times. The benefits are usually a percentage of the earnings. Most income protection insurance providers offer an impressive rate of greater than 90%. These benefits are paid on a regular basis, either weekly or monthly, and are tax-free. Therefore, the advantages are straightforward – it relieves the policyholders off different worries, provides a back-up plan, and in times of manic, offers certainty.
An average British citizen would want to believe that the development of the Welfare state is one of the most recognizable achievement, which has made lives of its citizens easier. However, as much as their faith is true, there is a practical side, which many might not want to embrace. The cost of running a whole kingdom is massive. With further strains that the government is enduring, it is not possible for the government to provide out-of-job individuals an adequate alternative, in terms of state benefits. A research conducted by Unum and Personnel Today indicates that about only 12% of employers offer sickness benefits, which last more than a year. With the Statutory Sick Pay being less than a £100 per week, and only lasting a mere 28 weeks, there is an increasing need for a long-term solution.
Since the premiums you pay are determined by how favorable the benefits offered are, you need to balance the premium payments and benefits. Failing to do so can prove to be quite difficult. For instance, if you believe that after cutting back on unnecessary expenses, you would need 65% of your salary to keep your financial position intact, mentioning this would entitle you to premium payments which are most suitable for you. If the benefits automatically comprised of 85% of your salary, something which is an extravagance in unfortunate times, you would have to pay higher and unnecessary premium payments. After you claim your insurance, the benefits last according the terms you selected. These may range from a several years to the time when you return to work. If you cannot return to work, these may last till your death. Policies which offer benefits indefinitely are more expensive than others. Again, you need to take affordability into account. The waiting period between your claim and commencement of the benefits is referred to as the ‘deferment period.’ When choosing a policy, you can choose the deferment period as well. If you have saved enough money for a rainy day and have something to temporarily fall back on, you might want to consider a longer deferment period. This would relieve you off some pressure with lower than otherwise premium payments. However, if you have very little or no savings, you would have to do with a shorter period. All these factors help you balance premium payments and benefits. They help you to mold the insurance policy according to your own needs, and thus, help you pick the option that suits you best.
It must be kept in mind that although IPIs act as lifesavers in adverse situations, there are certain terms and conditions, which accompany these policies. If the policyholder resumes a part-time or lower-class job on the road to recovery, he or she may experience lower benefits. This is usually done to encourage the policyholder to resume their previous work. Also, these policies come with definite areas. For the policy to remain valid, the policyholder must be a permanent resident of these areas. Changes in occupation may also render the policy invalid or might require change in terms. Certain occupations do not offer ‘own occupation’ packages and therefore, if you move to such an occupation, you would have to make some adjustments. Furthermore, despite the fact that these policies openly vow to protect against any illness or accident, there are some situations these policies do not cover. Accidents or illnesses, which result as a result of drugs, alcohol problem, war, pregnancy, suicide attempts and illegal activities, are not covered. Lastly, the greater the chances of deteriorating health, the higher the amount of premiums required. This is because insurance companies assess the probability of an occurrence before providing any insurance. A cigarette smoker is likely to have to a higher premium than a non-smoker. Similarly, an individual, who has a history of health problems, is going to experience higher premiums than a person who is hale and hearty.
Today, most of the major insurance companies in the UK provide IPIs. The biggest of them are Aviva and LV, while British Friendly and PG Mutual are not far behind. The best way of getting an IPI is to approach your employer, since it would cost the company a mere fraction of what it would cost an individual buyer. However, even if you choose to go ahead with it yourself, instead of finding it hard to get income protection insurance, you are likely to be perplexed by the options to choose from. Existence of these options allows us to have a personalized package, which takes into account the benefits we might need and the premiums we can afford to pay.