Different Types of IPI
Income protection insurance is a versatile financial product, providing financial cover to a range of professionals in varying circumstances. By reviewing the different types of IPI, you can make an informed decision about the type of income protection that's best for you and other factors such as potential state benefits. If you should be unable to work because of an injury or a serious illness, the proper type of IPI could protect you against the potentially disastrous consequences of a sudden drop in income.
IPI is available to employees who work for traditional employers, to self employed professionals and to groups. Group IPI may be purchased by small or large businesses and offered to employees as a benefit of employment. Individual IPI is purchased by professionals who wish to replace a percentage of their income if they become unemployed for medical reasons.
Renewable Income Protection Insurance
Renewable income protection insurance policies can be renewed at specific intervals, usually every 2 to 5 years. With renewable IPI, the terms of coverage prevent the insurer from denying renewal, even if the policyholder's health has declined. During the first contract period, renewable IPI premiums may be lower than fixed premium IPI, the most common type of IPI. However, premiums may rise in subsequent premiums based on your health, your occupation and your age.
Reviewable IPI is similar to renewable income protection insurance in that cover is renewed at regular intervals. However, rather than calculating your rates based on personal risk factors, such as increasing age, a change in your health status or a switch to a high risk occupation, the cost of reviewable IPI is based on insurance rates in the general population. Whilst it is possible that premiums may not be increased with each policy period, costs almost invariably rise over time.
Fixed premium IPI is the most common type of cover, offering set premiums throughout the coverage period. Guaranteed income protection insurance, like fixed premium IPI, offers extensive coverage that may last for an entire career. Whilst guaranteed income protection is generally more expensive than other types of IPI, you may enjoy increased financial stability for 25 years or more.
IPI with Increasing Value
Some types of income protection offer benefits that increase in value over time. Increasing IPI offers higher payouts over the course of your cover, protecting you against the rising costs of living. In exchange for higher payouts, you will pay higher premiums with increasing IPI.
Unit linked IPI is a unique form of income protection insurance that doubles as an investment tool. With a unit linked policy, a percentage of your premium payments is invested in the insurer's investment funds. If these investment funds perform successfully, policyholders may enjoy increasing benefits, and the policy will increase in value. However, if the funds do not increase in value, you may lose money.
Unit linked IPI is considerably more expensive than other types of IPI, which have no investment element. In exchange for higher premiums, you may receive larger payouts if you should become unemployed. If you have not made any claims on your policy, you may be eligible to cash out the policy for its monetary value after a certain period of time.
With several different types of IPI on offer, it's worth your time to investigate each option to see if its benefits and features might apply to your circumstances. Consider how much you can afford to pay for income protection and whether you have any additional resources to cover your expenses if you become unemployed. You must also consider your future needs, and how your career path may change over time when you choose income protection insurance.
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