What is income protection policy?
There are many types of insurance available in the market. The most common ones are life insurance, home insurance and critical illness insurance. Very few people realize that there is also income protection insurance. Like its name, the income protection insurance covers the policy holder in the event that he or she is unable to work and generate a decent income on his or her own. This form of insurance is available in the United Kingdom, Australia, and Ireland.
Should the policy holder become incapacitated to work after a certain period of time, the insurance company will disburse the benefits guaranteed in the insurance agreement to the policy holder. The agreed benefit is usually a sum of money equivalent or of similar amount earned by the policy holder before he or she was unable to perform at work due to an accident or illness. This sum of money is paid to the policy holder on a regular basis; usually every week. This income received by the policy holder is tax free.
Most of the time, the insurance company will waive the premium when the policy holder is proven to be unfit for work. However, should the policy holder recover and begin to work part time, the insurance company will reduce the amount or benefit given to the policy holder. This is to encourage the policy holder to return to work and not depend solely on the insurance.
There are also many variants of the income protection policy. The renewable policy allows the policy holder to renew the policy in terms of obtaining a higher sum assured. However, the insurance company has the right to refuse the renewal based on the policy holders’ age and type of occupation. The initial premium for the renewable policy is cheaper but it gradually increases with each renewal as the policy holder becomes older. Besides that, there is also the reviewable policy where every five years the premium rate will be revised to reflect the age and health of the policy holder.
In addition to that, there is the increasing policy where the benefit payable to the policy holder increases over time to contrast the increasing inflation rate. On top of that, there is also the investment linked policy where the premiums are more expensive as a portion of it goes to an investment fund. Finally, there is a group policy which employers purchase for their employees.