From Paycheck to Paycheck: Income Protection Advice Everyone Can Use

Income Protection AdviceYou have some savings tucked away, so why would you ever need income protection insurance? Believe it or not, an illness, disability, or sickness can suck the savings right out of your bank account in short-order. The reality is that most people are just 60 days from the curb, even when they have savings. How can this be? Because savings gets divided up between a savings account and a retirement account – and here’s where things get ugly. Not all retirement plans allow easy access to the funds, even when you’re unemployed or temporarily out of work due to a disablement or illness.

What Is Income Insurance?

Income protection insurance is an insurance policy that protects you in the event you can’t work. You may become injured on the job, sick, or even disabled to such an extent that you just can’t perform your normal work duties. This is how income protection insurance protects you – it provides you with money so that you can continue paying most of your bills until you get back on your feet.

Typically, a policy will pay about 75 per cent of your regular full-time pay. Why only 75 per cent? Because the insurance is meant to pay for major bills and expenses, not to replace a full-time income. This type of insurance also highlights one important reason why it’s a good idea not to spend everything you make. If you ever do become disabled, you’ll want to be able to pay all of your normal monthly expenses.

How To Get The Most Out Of A Policy

First things first: shop around. Every insurance company is different. They all offer slight variations on the same basic policy. While some insurers are flexible on waiting periods, some are not. Look for insurers that offer “unable to work at your current job” coverage. The alternative is “unable to work any job.”

When you buy a policy that specifies coverage only if you’re unable to work at any job, you may be forced to accept a lower-paying job before the insurer will pay out a claim. If you buy a policy that pays if you’re unable to work at your current job, you won’t have to take a “step down” in pay. This also prevents the slippery slope problem.

When you accept a lower paying job because you can still technically work at least some job out there in the marketplace, your future income protection benefit payments might be lower. Remember, income protection insurance typically pays about 75 percent of your full-time income. If you get injured on a second job you had to take due to an injury at your primary job, you may end up with a lower benefit payment than you otherwise would have had.

Make sure you always read your policy, that you’re covered for the right amount, and be sure to investigate the “no claims” bonus if you need to make a claim. This is money you get back if you don’t file a claim within a specified period of time. It’s a good way to recoup some of your premiums.

How To Buy It

Income protection quotes don’t always tell the whole story. Your best bet is to work with an insurance broker. Why? Because brokers get paid to shop around for you.

A broker will canvas the entire industry, and help you choose a policy with a fair premium given the coverage. More than that, he will be able to sort out the financially strong companies from the weaker ones. After all, what good is a policy if the issuing company has trouble paying claims? Talk to your employer about employee appreciation programs.

Andrew Harvey is a financial advisor with many years under his belt. An avid blogger, he likes to sit down and share what he has learned with others by blogging on the Internet.