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Income Protection Plans - Protection against Temporary Disability to Work

Finance: Insurance

Income protection plan is an insurance policy that provides the policyholder with a steady source of income in the event of disability to continue working due to illness or accident. It does not cover unemployment or redundancy due to other factors. The plan is chiefly available in the United Kingdom and Ireland.

Although slightly expensive, these plans take the stress and strain off the client's shoulders and provide the best financial security in such emergencies. They help people endure a period of unemployment due to temporary income loss due to disability. The income, known as indemnity, is usually fixed as a percentage of the policyholder's monthly salary.

Various income protection plans are available with different specifications. A few are specific to certain occupations. The plans will specifically define incapacity to work. The policyholder begins to receive payouts after a stipulated period of being off work as per the contract. This is the deferred period - the time between a valid claim and commencement of benefit payments. The cost of the policy largely depends on this. The premium is more expensive with a shorter deferment period. The policyholder's occupation, current outgoings, and the level of benefit required also decide the payout.

Benefits

The income protection insurance payout is tax-free. The premiums usually cover around 65 percent of the gross salary. Annual or monthly payment options are available along with many short-term plans catering to the requirements and income demands of the clients. The proportionate benefit encourages the policyholder to return to work after recovering health. The waiver of premium option allows the policyholder to enjoy policy benefits without paying the premiums. The plans are beneficial to self-employed as they are not entitled to any form of sickness payment.

Limitations

A professional guidance helps to choose a suitable income protection plan. One should be aware of the limitations of these various plans. The policies do not payout if the policyholder becomes unemployed for any other reason than illness or accident. Knowledge of the type of illnesses or accidents that a plan includes or excludes is very crucial. The client should note the deferred period. Premiums depend on various factors such as occupation, smoking habit, age, health, and the cover required.

The policies limit the maximum benefits that a client can entitle. Therefore, taking too much income protection cover is not advisable. The client should not end up paying monthly premiums for a policy that he may not be able to make a claim. Some policies may become invalid with the change of occupation of the policyholder.

Income protection plans protect the policyholders against their inability to work due to accident and illness. They provide the required financial support to the client during unfortunate situations. This can be utilized to meet any of his expenditures such as mortgage, utility bills, and personal secured and unsecured loans. But, these plans do not insure against unemployment. One might also need to complement the plan with other insurance policies for better financial security.



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