As a parent, one of your highest priorities is ensuring that your family is taken care of financially. You work hard to provide for them and make sure they have everything they need—but what would happen if something happened to you and you were no longer able to work? How would they manage?
That’s where income protection insurance comes in. Income protection insurance is a type of insurance that replaces a portion of your income if you become disabled and are unable to work. It can help give you and your family peace of mind knowing that, even if something happens to you, there will still be money coming in to help cover bills and expenses.
How Income Protection Insurance Works
Income protection insurance policies typically pay out a benefit of up to 75% of your regular income if you become disabled and are unable to work. The benefit is generally paid on a monthly basis, and most policies have a waiting period of 30-90 days before benefits begin kicking in.
There are two main types of income protection insurance policies:
- Indemnity policies: With an indemnity policy, the amount of income you replace is based on your actual earnings at the time you become disabled. For example, if you earn $50,000 per year but are only able to work part-time due to your disability, you would only receive benefits based on your part-time earnings.
- Agreed value policies: With an agreed value policy, the benefit amount is set when you first purchase the policy and does not change, even if your actual earnings change over time. So, if you purchase an agreed value policy with a benefit amount of $50,000 per year, that is how much you will receive regardless of whether you are working part-time or full-time when you become disabled.
Generally speaking, indemnity policies are less expensive than agreed value policies—but they also provide less financial protection since the benefit amount is based on actual earnings rather than being set up front.
Income protection insurance can be purchased as an individual policy or as an add-on to an existing life insurance policy. Some employers also offer income protection insurance as part of their employee benefits package—so it’s worth checking to see if this is something your company offers before purchasing a policy on your own.
Income protection insurance is an important type of insurance for parents to consider because it can help replace a portion of your income if you become disabled and are unable to work. It’s important to understand how income protection insurance works and what types of policies are available before purchase so that you can choose the right one for your needs. By doing so, you can help ensure that your family is taken care of financially even if something happens to you.