Income Protection cover ensures that there is no dip in regular income of a family even if the breadwinner is unable to support it financially in any period. There are two ways to ensure that the dependents are well provided for. One is by saving enough so that monies can be withdrawn during any exigencies. Other is by taking income protection policy. In the initial stages of career, it is not possible to save enough for such emergencies. Therefore, it makes sense to purchase such a cover in this phase of career.
Generally, such policies are recommended as an insurance against loss of job, debilitating illness, or other injuries that prevent a person from continuing with his or her employment. The cover may also be taken for shorter period. However, the underlying assumption is that such lack of regular income would be for longer period than is manageable with regular savings.
When the risk that is covered occurs, the insured or insured’s family receives regular tax free income from the insurance company. This income may be paid regularly till retirement or till the individual gets well and returns to his or her job. In some situations, such as workplace accidents, an employee may be entitled to claim compensation from the employer. Such compensation may be given as an annuity or regular income. Moreover, there may be benefits from the State as well. Therefore, the employee needs to purchase a cover of only 50 to 65 percent of his or her income at any point of time. This is because the insurance company is at liberty to restrict the payment to an amount that the employee was drawing before the undesirable event occurred.
A very important part of Income Protection cover is what is known as “waiting period”. If the insured opts for a longer waiting period, the premium would be lower. Buying such cover in the initial stages of career, therefore, ensures that the waiting period is longer. Consequently premiums are also lower. Premiums on this plan vary according to age, health, gender, and other risks associated with the insured.
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