Income Protection Insurance

An income protection plan is a type of benefit that provides you with monthly income payouts in the event of a temporary or permanent disability event occurring.

Income protection cover is a type of insurance that many people don’t know of. Most people focus on medical insurance and life insurance, often leaving income protection as a tier-2 element in the financial planning process.

However, this type of cover shouldn’t come second – on the contrary, your income is what makes sure that you and your family can maintain the way of life you want and offers a shield against any unexpected events, including health problems. Your income is your safeguard and without it, things could turn for the worse, fast.

When unexpected situations minimise your income

Each month you may need to cover specific costs such as food, clothing, heating and more that are standard for many. Your income may come from your work and monthly salary or any type of investments you might have. When you are healthy, you can provide whatever is necessary for your family.

But, what can happen if an unexpected health problem deems you unfit to work and therefore unable to earn an income? You may continue to support your family by spending money from your savings account… but dipping into your savings is not ideal.

A regular income may mean that many are left without savings and may not be enough to cover family needs for weeks or months. The cost of living has skyrocketed, hitting new records – so what can you do to avoid unfortunate situations like this and maintain your standard of living?

What is income protection insurance?

An income protection plan is a type of policy that provides you with monthly payouts in the event of you not being able to work due to severe illness. It is your ultimate safeguard as, regardless of your medical condition, you will be able to receive monthly payments whilst you focus on getting better and receiving treatment.

An important factor that should influence your decision on taking out this type of insurance policy is that there is always a minimum pre-agreed waiting period until payments start. As a rule of thumb, the longer the waiting period, the smaller the monthly premiums will be.

What is the difference between income protection and critical illness insurance?

Both types of insurance are quite useful when building a financial plan as they cover a wide array of illnesses that could derail your family budget and create uncertainty.

The difference is that critical illness insurance will oblige the provider to pay a one-off lump sum in case you get sick from one of the illnesses included in the policy’s list. Income protection insurance means that you will be receiving a monthly payment after a pre-arranged waiting period for as long as you will be unable to work as a result of an illness or accident.

Both policies have been designed to offer solutions if anything unexpected happens that would force you to lose your income. Therefore, you could combine these policies to be stress-free in the future and be certain that nothing would affect your loved ones’ lives.

How to choose the right income protection policy?

Deciding on which income protection policy is right for you isn’t easy. There are simply too many insurance products for you to choose from. Remember that the cheaper option is not always the correct one.

One of the most important things is that you shouldn’t avoid mentioning any health issues that you might be facing. Lack of disclosure may force the provider to deny payment; a situation that you should avoid to increase your chance of a successful claim.

Another factor that you should always remember is to review your policy every year. Things in our life change when new financial commitments are added. Review your policy and make sure that it has been adjusted according to your new financial situation.

In my role as a Portfolio Manager, I have worked with Shieraaj to craft investment solutions tailored to his clients’ specific objectives. He is very detailed in discussing the requirements and restrictions that we need to address, which combined with his unwavering professionalism, make him a pleasure to work with. I look forward to continuing our partnership and developing investment solutions for many more of Shieraaj’s clients.

Michelle Matthews

Portfolio Manager of Private Clients, Old Mutual Wealth