Thursday, July 31, 2014

Insurance 101: Insights on Protecting Your Income

Have you heard of income protection? It is one of the must-have insurance policies that every working adult should possess. Unfortunately, not many invest on it. This may be due to the lack of knowledge about its importance.

Loss of income is a sad reality that could happen to any employee. It can result from the inability to work temporarily or permanently because of accidents and/or illnesses. Although employer companies offer appropriate compensation during such situations, the amount that the ailing employee will receive may not be enough to cover his medication and other expenses. And it cannot get any better if he has a family to support.

Through an income protection policy, concerned workers can be assured of continued income flow in the event of an injury or illness. The income that he will be receiving would be equal to the amount he used to receive prior to his loss of earning capacity. The income referred here is called payouts. These payouts equate to such amount because they are tax free.

When it comes to the costs involved, the income protection policy costs depend on the period that you stopped receiving sick compensation from your employer company and the time you began acquiring payouts. This is called the deferred period. If you have a long deferred period, you will have low policy premium to pay. Should you want to pay much lower policy premium, you can agree to getting payouts that cost less than your regular salary that you receive.

Moreover, you can choose between long term policies and short term policies. Long term policies will support you from the end of your deferred period up until the time your pension starts. Short term policies, on the other hand, are limited to a specified period like twelve or twenty four months. If you have limited budget to pay for your policy, you can go for the short term one. 

Not only the sick can benefit from income protection policy but also those who are self-employed. However, the computation would be different and so a separate consultation on this is advised.