INSURANCE

Income Protection Cover

Extending your income protection cover will increase your financial stability during a period of unexpected unemployment. Even healthy, fit professionals with no prior medical conditions may be injured in an accident or be struck with a serious illness. Because there is no way to predict all of life's eventualities, income protection cover is a wise investment.

Income protection insurance, or IPI, is a form of cover that pays out if you become unable to work because of an injury or illness. After the deferred period, or the time between your last day of employment and the date your benefits begin, you will receive payouts monthly or weekly. Your cover will last until you go back to work, or until your coverage period ends. If you retire or pass away before your contract expires, your payouts will end at that time.

IPI Exclusions

When you purchase income protection insurance or self employed IPI, it is important to review the policy wording so that you are aware of the extent of your cover. Standard income insurance includes only unemployment caused by a physical injury that keeps you from continuing your present employment, or a debilitating illness. Many conditions of unemployment are excluded from most income protection insurance, however. To prepare for these conditions, you must build an emergency savings or explore other types of insurance.

Employment caused by redundancy is excluded from income protection cover. If you are made unemployed because of an economic downturn, payment protection insurance can cover specific loans, such as a mortgage, auto loan or credit card, for up to 12 months after you stop working. Because redundancy is a reality that many professionals face at some point during their career, preparing for this eventuality is essential. An emergency savings and investment plan will help you to avert the financial consequences of a job loss.

Certain physical conditions are excluded from standard income protection cover, such as self inflected injuries, substance abuse and injuries incurred during acts of war or criminal activity. Pregnancy is not covered under standard income protection cover. Voluntary resignation from a job for reasons other than illness or injury are also not covered.

Supplementing IPI Cover

IPI benefits replace only a certain percentage of your income. Dependent on your earnings, your IPI payouts may represent between 50 and 70 percent of your gross salary. In most households, IPI payouts must be supplemented by additional sources of financial support, such as state benefits and personal savings.

Statutory Sick Pay, or SSP, is paid out by your employer if you are unable to work for 4 or more days in a row because of an injury or illness. Some employers offer occupational sick pay schemes as an alternative to SSP. SSP benefits can continue for up to 7 months after you first become ill or injured. Payments represent only a portion of the employee's regular earnings, however, and most families cannot maintain a comfortable standard of living with SSP benefits alone.

If you are self employed, you cannot claim SSP benefits. Employment Support and Allowance, or ESA, is available to self employed professionals and to individuals whose SSP benefits have expired. When combined with SSP or ESA benefits, income protection cover may allow you to pay for your basic needs and cover repayments on personal loans or credit cards until you are able to resume working again.

Income Mortgage Protection

Mortgage payment protection insurance, or MPPI, is a type of income protection cover that pays out specifically for mortgage repayments. MPPI may pay out for illness, injury or redundancy, dependent on the extent of your coverage. An MPPI policy may be customised to include income protection cover for accidental injury or illness, or for redundancy only. If you have another type of coverage and you only need to insure your mortgage against redundancy, MPPI may be a suitable solution.

MPPI may be required by a mortgage lender when you take out a loan to buy a home. Some lenders will insist that you purchase MPPI, whilst others strongly recommend this coverage. However, you are not required to purchase the policy recommended by your lender, and you may get a better deal if you compare quotes from several providers before you choose a policy. Because a home is the most significant financial asset that many working adults own, MPPI can be a valuable investment for many families.

Income protection cover is not compulsory by law, nor is this coverage suitable for all households. However, if you rely on your salary to pay for basic household expenses, a mortgage, car loan and other bills, your policy may prove extremely useful if you should be struck by an unexpected physical ailment. Consider your needs and options carefully to find the best strategy for securing your earnings in a financial crisis.

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