Income protection insurance can provide you with a portion of your regular income if you are unable to work for an extended period due to injury or illness.

Unlike life insurance, which pays a lump sum upon your death or being diagnosed with terminal illness, income protection insurance is all about providing a regular income to keep you and your loved ones financially afloat while you get back on your feet and back to work.

Usually a waiting period applies before any income protection payment is made; that is, you need to be unable to work for longer than the waiting period, and after that, entitlement to income protection benefits commences. Payments are then made monthly in arrears.

Income protection insurance is designed to help you maintain your financial stability during times when you can’t earn your regular income. The policy pays out a percentage of your income, often up to 70%, ensuring you can continue to meet your financial obligations, such as mortgage repayments, bills, and daily living expenses.

Key components of an income protection policy include:

• Benefit Amount: The monthly payment you’ll receive, based on a percentage of your income or based on your own stipulation at the outset (taking on more cover increases the price, of course).
• Benefit Period: The duration of time you’ll receive payments, which could range from a few months to several years, or until you reach retirement age.
• Waiting Period: The time you must wait before payments begin after you’re unable to work, typically ranging from 30 days to 2 years.
• Premiums: The cost of the policy, influenced by factors like your age, occupation, and health.

When to Consider Income Protection Insurance

Income protection insurance is particularly important at certain life stages and under specific circumstances:

• Starting a Family: If you have dependents, such as a partner or children, income protection ensures they can maintain their lifestyle if you’re unable to work.
• Taking on a Mortgage: Homeowners can use this insurance to cover mortgage payments, preventing the risk of losing their home if they’re unable to work.
• Self-Employment: Without access to employee benefits like sick leave, self-employed individuals should consider income protection to cover personal and business expenses.
• High Debt Levels: If you have significant debts, income protection ensures you can continue meeting these obligations even when you’re unable to work.

Even if you’re currently healthy, it’s wise to consider income protection as part of your long-term financial planning. Taking out a policy early can help you secure lower premiums and ensure you’re covered in case of an unexpected illness or injury.