Income protection insurance protects the most important thing that most of us do not protect – our income.

When we name the insurance policies we have, we usually rattle off the well-known ones of house, contents, life and car insurance.

Yet income protection insurance should be right up there in our policy collections, but only an estimated ten percent of us are covered.

Stunning really, considering that for most of us, two weeks is the average time that we would be able to survive with no money coming into the household.

What would you do if you were unable to work for six months due to illness or injury?

It is predicted that one in four of us will need at least three months off work during our working careers due to sickness or accidents.

In fact we are three times more likely to need long term sick leave than we are to die during our working life.

Would you have enough savings to pay your day to day bills or would you need to borrow off of others? If so, how would you pay them back? Could you turn your assets into cash in a hurry, assuming that somebody is willing to pay the price you want?

Who Should Have Income Protection Insurance?

If you have financial responsibilities such as a mortgage or other loans, or you are the family income earner, you need to protect your wage.

Our incomes pay for our lifestyles, our mortgages, our car repayments, food and clothes for our kids and even our electricity bills.

Without any money coming in to the household, we would be unable to pay for these items. The power is cut off, the bank forecloses on our properties, the car is repossessed and we have to rely on the generosity of others to feed and clothe our children.

Yet it is simple to protect our biggest asset, which is our ability to earn a wage.

Types Of Income Protection Insurance

There are two types of income protection insurance – the indemnity and agreed value options.

An indemnity or loss of income policy will pay up to a certain percentage of your annual gross income.

The percentage varies according to the policy you choose, but is generally around the 80% mark.

This policy is also calculated when you claim on it, meaning the insurance company will require financial evidence about how much you were earning just prior to your claim. So if your income drops before you claim on your policy, your claim would be based upon your smaller latest income.

An agreed value policy will pay a set amount of your annual gross income, usually around 50-70%, which also varies depending on your policy and insurance company.

When starting this policy you are required to present financial documents as evidence of how much you earn. Then an agreed set amount is decided upon which you would be paid monthly, should you claim and if your claim be accepted.

If your income was to go up during the course of your policy and you did not update it, you would still only receive the initial amount that was agreed upon at the commencement of your policy.

Benefits Of Income Protection Insurance

Basically the most important benefit is knowing that you will have guaranteed income should you not be able to work due to injury or illness.

Even though it is not the full amount of your salary, chances are that it is still significantly higher than any government or social welfare payments.

You will have the peace of mind of not having to worry about not having to worry about where to get money from and know that you will not be a burden on your family.

How Long Does Income Protection Insurance Last?

Policies will usually have a stand down period, meaning that once you claim upon it, you will have to wait a set amount of time before you start getting paid.

Once payments begin, you will be generally paid until you are able to return to work or until you reach retirement age.

Companies and policies do vary, so it pays to check around and find one that will meet your specific needs.

Income Protection Insurance Costs

Policy costs vary depending on your personal circumstances. This includes your age, gender, if you smoke or drink, where you work and sometimes your health history.

Once again it pays to shop around to get the best deal, but can you afford not to pay it?

You could spend your entire working life paying for an insurance policy that you do not need. But that is what insurance is about.

The small cost of having income protection insurance is well worth being able to sleep at night without wondering what you would do if you did not have one.

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