What is Income Protection Cover?

Income protection insurance is insurance that guarantees your income if you are unable to work due to illness or disability.

Most people plan and dream of having an income by the time they retire. But what if something happens to you and you can't work? Income security determines your quality of life and your family's financial security.

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How does income protection insurance work?

Income protection insurance typically covers up to 100% of your income for up to 24 months depending on the cover period you choose or until you recover.

There is usually a waiting time. This means that you cannot work a certain number of days before your benefits are paid.

In general, the longer the waiting period, the lower the premium ("premium" means paying the premium). Typical wait times are: 14 days, 30 days, 60 days, 90 days, 180 days, 1 year or 2 years.

“Benefit Period” means the period during which you receive the payout. Typical reference periods are 1 year, 2 years, 5 years, or up to 55, 60, 65, 70 years.

How does income protection cover work?

Income Protection provides protection if you are permanently or temporarily unable to work at your current job.

For example, a broken leg might take you out of work for three months, but you still have to pay your bills and take your children to school. Disability insurance can help with that.

A myriad of Complete Income Protector benefits pays up to 100% of your earnings for up to 24 months, or until you recover, depending on the coverage period you choose. If you cannot work permanently, some insurance companies will pay up to 100% of your net income until you retire.

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How’s that different to permanent disability insurance?

Full and permanent disability insurance states that if you are permanently unable to work or lose the ability to work cognitively or physically in your job or a job to which your education, training or experience is suitable, you will receive a lump sum payment.

The money can be used for things like home remodelling, medical care, or medical procedures that pertain to your injury.

You can choose insurance that covers you if you are unable to work at your job, or insurance that covers you if you are unable to work at a job with proper training. You can get a stand-alone policy or a policy integrated with a life insurance policy. A stand-alone policy does not limit the amount you receive to life insurance coverage. (This is not the case if full and permanent disability insurance is part of your life insurance policy.)

The main difference between income protection insurance and full and permanent disability insurance is that the former provides a stream of income while the latter pays a lump sum.

Another important difference is that the amount insured for income protection insurance may be limited to 75% of your income, whereas full and permanent disability insurance can cover any amount.