Young Professionals – The Importance of Income Protection
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For young professionals, especially those without dependents, perhaps the most important type of protection policy is Income Protection. This type of policy offers protection against being unable to work because of an accident or illness.
If you were unable to work how would you be able to meet your rent or mortgage payments, your monthly bills and your general expenditure?
What is Income Protection?
An Income Protection policy is one that pays out an income if you are unable to work due to an accident or illness. Reasons to claim can include conditions such as long-term back pain, serious injuries caused by an accident, stress or depression or illness such as cancer, heart attacks and strokes.
How Does Income Protection Work?
An Income Protection policy will pay out a tax free monthly benefit once the deferred period comes to an end. Premiums are based on:
The Benefit Amount – the maximum benefit is typically around 60% of your gross salary.
The Policy Term – this can be for a set number of years or until retirement age. You can make multiple claims during the policy term.
The Benefit Type – the benefits can remain level throughout the term (and will be eroded by inflation over time) or benefits can go up each year, either in line with inflation or by a fixed rate.
The Premium Type – the premiums can either stay the same if the benefit remains level or increase at a specified rate if the benefit is increasing each year. These are known as guaranteed premiums. It is possible to have premiums which are reviewed periodically and these are known as reviewable premiums.
The Deferred Period – this is based on how long you need to wait before the benefit is paid out. Typical deferred periods are 4 weeks, 13 weeks, 26 weeks and 52 weeks and usually take into account any sick pay you may receive from your employer.
How Is An Income Protection Claim Assessed?
Most insurers will use an ‘Own Occupation’ definition of incapacity and a claim is based on your inability to carry out the tasks involved in carrying out your job. Obviously, this will be dependent on the kind of job that you do.
There are other definitions of incapacity which may be applied depending on your circumstances at the time you make a claim, for example, if you were unemployed. In these circumstances the insurer may use an ‘Activities of Daily Living’ definition which is your ability to walk, lift, use the stairs or get in and out of a car.
Underwriting
You will need to answer a number of medical and health questions as well as questions regarding your occupation. It is generally quite straight-forward although there may be questions relating to the medical history of immediate family members.
It is important to answer honestly and disclose all relevant information.
Existing Cover
You should check with your employer whether you are a member of a Group Income Protection policy and what benefits are payable before taking out an individual policy.
Find Out More
Income Protection can provide a valuable benefit as one of the biggest risks young professionals face is not being able to maintain their lifestyle in the event of not being able to work and earn money to meet their expenditure.
If you would like to discuss Income Protection further, please do contact us using the button below.
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