INSURANCE

Unit-Linked IPI

Unit-Linked IPI is a type of income protection insurance whose value is enhanced by an investment element. With unit-linked IPI, a percentage of the policyholder's premiums is contributed to the insurer's investment funds. If these funds are successful, the value of the policyholder's benefits will increase through investment profits.

Income protection insurance offers financial security to working professionals whose standard of living would be compromised by a loss of income. Defaulting on mortgage repayments, auto loans or credit cards can result in late fees, higher interest rates and a negative mark on your credit rating. Eventually, failing to keep up repayments on your debts may lead to a County Court Judgment, home repossession or bankruptcy. IPI offers security against these eventualities by paying out a percentage of an employee's income if he or she cannot work for medical reasons.

IPI as an Investment Tool

As with any other financial product that includes an investment component, unit-linked IPI and  group IPI plans involves an element of risk. If the insurance company's investment funds are not profitable, the value of your IPI payouts will not be augmented by this feature. However, you may still be charged higher premiums for unit-linked IPI than for traditional IPI, even if the policy does not perform as expected.

If unit-linked IPI investments are profitable, the insured may receive higher payouts as a result of his or her participation in the insurer's investment scheme. In this sense, unit-linked IPI has the potential to increase in value whilst protecting the policyholder against the rising costs of living. Over time, as expenses such as rent, utilities and food increase, the increasing benefits of unit-linked IPI can prove advantageous.

Professionals who are interested in the financial potential of unit-linked IPI should explore their options thoroughly before settling on a policy. Review the terms and conditions of the policy's investment element carefully to make sure you understand the policy's financial ramifications. Most importantly, the payouts of an IPI policy should give you enough financial security to protect yourself against the serious repercussions of a prolonged period of unemployment. Weigh the risks and benefits of any investment product before making your decision.

IPI Costs and Benefits

In exchange for the investment potential of unit-linked IPI, policyholders must pay a higher premium for this form of income protection. Before you choose a policy, compare quotes from several providers on the costs and benefits of the different types of IPI. In addition to traditional, fixed-premium IPI, you may choose reviewable, renewable or increasing IPI. Reviewable and renewable policies can be renewed at regular intervals, whilst increasing IPI offers benefits that increase to guard the policyholder against the impact of inflation.

IPI payouts are tax free, which allows the insured to apply every penny to living expenses and bills. After the deferred period, which is determined by the policyholder, benefits are paid out weekly or monthly until the insured goes back to work, retires or passes away, or until the end of the contractual period. Because IPI benefits cover only a percentage of the insured's salary, generally up to 70 percent of his or her gross income, policyholders must usually draw from a number of different financial resources during a period of unemployment.

Unit-linked IPI benefits can supplement your state benefits and personal savings or investment funds if you should become unemployed due to an illness, injury or accident. Review the investment potential of a unit-linked policy before you decide whether this variation of income protection insurance is right for you. A knowledgeable, reliable insurer can advise you on the best type of IPI for your specific circumstances.

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