So what is Income Protection? It is pretty much what is sounds like. You take out an insurance policy, that protects your income. It typically covers between 50-75% of your gross income, if you are too ill to work.
Things to consider:
Sum Assured/Monthly Benefit - tax free payments on personal Income Protection policies, generally covering up to 50-75% of your gross income.
Occupation Definition - policies come as own, suited or any occupation. Own occupation means that a claim will be paid if you cannot do your own job. Suited occupation will pay if you are unable to do your job or any like job that you are suitably trained for. Any occupation will pay if you cannot work in any job at all. You ideally want to get own occupation cover.
Deferred Period - this is how long you must wait before the policy registers the claim, once you are unable to work. This can be 1 day, 1 week, 4 weeks, 8 weeks, 13 weeks, 26 weeks or 52 weeks. Watch out though! You often receive the claim benefit roughly four weeks after your deferred period. A policy with a 4 week deferment will see payment around week 8. Also, make sure that the deferred period matches any sick pay that you receive from your employer.
Policy Term - this is how long the policy lasts for and will ideally run until your anticipated retirement age.
Claim Period - this is how long you will receive the monthly income replacement for, and it will again ideally run until your anticipated retirement age. You can usually reduce the cost of your cover by choosing shorter benefit periods of between 12 months and 5 years.
It is also possible to arrange short-term income replacement policies, to protect your income, if you are made involuntarily redundant. These policies will pay for a maximum of 12 to 24 months.
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