Insurance for Income Protection

Insurance is defined as a reimbursement provided to people or companies in case of loss. In economic terms it can be said as a form of risk management used to hedge against the risk of a contingent loss. Insurance is of many types like auto insurance, health insurance, life insurance, income protection insurance, public liability insurance, commercial insurance, credit insurance, home insurance, and so on.

Income protection insurance is an insurance policy that protects income of a person in the situation of a job loss due to disability or illness. This policy is mostly available in the U.K. The insurance provides a monthly payout which is termed as indemnity. The payout will be fixed as a percentage of the policyholder’s income. Income protection insurance may be purchased as a rider for financial agreements like credit cards, mortgages, and car loans. Healthcare coverage is also protected under income protection insurance.

Income protection insurance has some benefits when compared to other insurance policies such as sickness, accident, and unemployment insurance. The policyholder is paid with benefits regularly, which may be weekly or monthly, and are free of tax. If the policyholder continues to pay the premiums, the insurance company has no right to cancel or refuse to renew the policy. A waiver of premium option must be provided when premiums for the income protection insurance policy are not required when the benefits are paid from the policy.

The income protection insurance policies are a bit expensive because of the guarantees that are offered by the policy. As the deferred period increases, the premiums get decreased. The cost of the policy also gets reduced when choosing a ‘suited occupation’ or ‘any occupation’ over an ‘own occupation’. The policies of insurance are classed as long-term insurance. These are regulated by the Financial Services Authority (FSA) under its Insurance Conduct of Business Sourcebook (ICOBS) rules. It is required that the insurance company must keep records of the contract for a minimum of six years. A minimum of 30 days is available for the policyholder to cancel the contract.

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