Is Income Protection Insurance Worth Buying?

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Insurance policies have been growing in number compared to the policies about half a decade ago. These policies vary according to the type of risks applicable to us depending on our current medical, social and environmental conditions. Some of these might be applicable to us while some don’t.


With regards to the Income Protection Insurance (IPI), the need to have one isn’t really clear for some since, as observed, only about 10% of the total working population avail of this one. The line of necessity isn’t clearly drawn for everyone. Because of that, questions such as the practicality of it surfaces. In here, we are going to discuss what Income Protection Policy is all about and we’ll let you assess if you needed one.

An Income Protection Insurance is a policy where a proportion of an individual’s income is used in the event that certain circumstances render him/her unavailable for work. These instances can be of medical, social or environmental nature. But why do we need to avail this one?

Every one of us have a fair share of chances of having issues such as becoming disabled for a certain period of time. This can happen in a world full of unprecedented events. As what insurance stands for, we tend to transfer this risk to the insurers. Having this insurance can assure you that there will still be a dispensable income given to you. In other words, having one is like installing a safety net to guarantee you of a stable income.

Now there are two types of this kind of insurance. First is the Indemnity Value. This kind of IPI is the more common option of the two because this is generally cheaper. The premiums you have to pay for this is based on your income at the time when you’re intending to make a claim. The downside of this is that your claim is very much dependent to the fluctuations of your income. Hence, this type of IPI policy is intended for those who already have a steady and reliable income.

The other one is the Agreed Value. This one is the opposite of the first policy. In general, premiums of this are expensive. The nice thing about this policy is that the benefit you receive is based on an agreed income and is very much not affected by the changes in your income. Hence, this is very suitable for those who have varying incomes such as the self-employed ones. Income protection insurance is also sometimes offered through superannuation funds, and generally these will be indemnity value policies and may offer less flexibility or fewer features.

Since these policies cover the times when you are away from work, the premiums that you have to pay also varies upon the length of absence. The greater is your conceived period, the greater is the premium’s price. This benefit also sets a maximum length of time that the benefit can be paid of. Generally, this is set on a periodic basis such as 2 years and on certain ages such as when you reach 65 or your age of retirement.

Now, do you need to avail one? Well, it is indeed practical to have one especially when you are an employee. But in availing one, you must properly assess your fixed costs such as mortgage payments, car repayments, school fees and the like, and your variable costs such as your food consumption, utility bills, medical bills and the like. In doing so, you can have a vision as to how much of your total income are you willing to apply for this policy. Now if you don’t have any concern regarding this, then you might not really need one.