Income Protection Basics

One of the product I always introduce when I first sit down with a prospect is Income Protection insurance (also known as Disability insurance). Unfortunately, most are not aware that statistically, we face a higher likelihood of a long-term illness than we do from physical death – at age 42 it is 4 times more likely that you will be disabled than you will die during your career; worse, many do rely on their companies to cover them should something happen down the road.

The real question to ask yourself is how long would your company keep you on payroll if you were not fit to work for them anymore? Of course, good employers would keep you on payroll for a few months months to give you time to recover. But at some point, should you not recover fast enough, they have to make a business decision. This is where the income protection insurance kicks in.

How does it work?

Income protection will protect your greatest asset… your income.

It can replace up to 75% of your gross revenue, and kicks in when you need it most: when you are ill or injured and unable to work. Thanks to it, you can focus on recuperating and getting well again while you know a regular income keeps coming in your way.

Technicalities

You can chose your deferred period – the number of weeks you have to wait before your insurance kicks in – so as to manage your premiums. Of course, premiums decrease as the deferred period increases.

You can also chose to insure your income for different periods of time. Usually, you can opt for an insurance covering you for 2 years, 5 years or even, until your “retire” at age 65.

Of course, insurance companies being insurance companies, most of them set a number of exclusions to their policies. Benefits may not be payable for accidents or illness arising because of drugs, alcohol, wars, pregnancy, and self inflicted injuries.

Three Advices

I hope these few lines helped you understand better what insurance protection is all about, and how it can help you. To wrap this up, here are three advices I give on a regular basis to people who think they don’t need it.

1. Don’t assume that you don’t need income insurance (or additional coverage) because you’re young and healthy. If you are under 35,you have 1 in 3 chances to be disabled for more than 6 months during your career
2. Even if your company is generous and provides with an income insurance benefit, don’t assume that it’s necessarily enough to cover all of your income replacement needs. Maybe it is. Maybe it isn’t. Take a little time to calculate your needs appropriately so as not to discover your income protection falls short when you need it. I quite like this calculator: MBF Calculator.
3. If you have a need for insurance, lock in coverage early, when the need first presents itself. If you wait too long, your flawless health history may deteriorate, and your rates will rise accordingly. Worse, should you health deteriorate or you suffer from a serious chronic condition, you may be unable to insure yourself down the road.