How to Get a Safe Income Protection Cover

Income Protection Cover policies often fall under the most overlooked category of insurance schemes. But this can be one of the most profitable types of insurance that can benefit the policyholder directly in his lifetime rather than just being a safeguard for his/ her family in case of an accident, critical illness or death. But like every other insurance schemes, Income Protection Cover policies have their bunch of tips and tricks that you must be aware of in order to secure your future. In order to stay safe of fraudulent assurances and choosing a policy that suits your unique professional and economic situation perfectly, here’s a list of things that you must know and do before choosing an Income Protection Cover policy.

Why should you apply for Income Protection Cover policies? If you are a young professional, chances are that you will look upon Income Protection Cover policies as an unnecessary, maybe even paranoid protection detail. Who cares about an accident or sickness that seems like an absurd idea when you are in the bloom of health? In today’s competitive world, no occupation can be without its hazards. Quite apart from traditionally recognized hazardous occupations, like firemen, lifeguards etc. the polluted and insanely stressful world we live in, makes sure that even bankers, IT workers, engineers and other so-called elite professionals are also always under extreme pressure in work environments. Distracted by professional commitments and ambitions, these people often tend to disregard personal safety and health. If you are unlucky, this inattention can lead to disasters sometimes in the form an accident, sudden severe illness etc.

The problem is that in most cases like these, the unfortunate victims often tend to survive due to proper medical care and attention. But human body is fragile after all and often refuses to heal fully after a severe shock to its system. In cases like these, the victim is often unable to return to his previous employment or any form of employment at all for certain periods. This is where you need the protection afforded by Income Protection Cover policies to ensure that you maintain your basic necessities like living costs, cost of dependants, debt payments etc. while still maintaining almost a similar lifestyle as before. Please keep in mind that living costs can only increase over time, same as medical and educational expenses. If you already have the burden of a debt interest payment, premiums for other kinds of insurance and/ or mortgage, it is a good idea to provide for those too. People employed in occupations that pose a regular threat to life and limb should always have an Income Protection Cover policy activated in case of a sudden mishap. This is because state responsibilities in the case of an accident or illness like statutory sick pay and incapacity benefits often are too meager to support an average middle-class lifestyle.

‘Work’ or employment seems to be the crucial factor in Income Protection Cover policies. How is this work determined in case the policyholder needs to file a claim? This is generally the trickiest question to answer as indeed most claims tend to be denied for not complying with the clauses stated in the policy. What you have to understand is that, not everything is stated clearly in the black and white of the small print in insurance policy forms. There is a lot that is left to be understood and it is your duty as a policyholder and as a person risking his/ her money in the scheme to probe into those grounds deeply and ask every possible question that can be asked. This is to make sure that you don’t fall foul of what is generally understood in banking and insurance markets but may not be explicitly stated in the policy and something that you as a layman may not be aware of. For example, did you know that the ‘risk factor’ of Income Protection Cover agencies calculate their coverage based on regular, taxable income only? In case you are occupied in an unsteady returns business venture or dependant on an unpredictable farm produce for your regular income – the policy coverage might not extend to you.

Here is a general overview of how work is determined in case of Income Protection Cover policies. Please note the actual wording may differ from company to company and a policyholder must satisfy one or more of the specific clauses stated by the insurance agency in order to be eligible for a valid claim. The actual 'work' can be defined as:

Own occupation – If after a serious disease or accident, the policyholder is rendered physically or mentally unable to go back to their previous mode of livelihood (own occupation) and is not employed in some other similar kind of job, the 'own occupation' clause under Income Protection Cover policy might come into effect.

Activities of daily living (ADLs) – This clause can be put into effect only when a policyholder is not able to work on regular daily activities and chores (as mentioned in the insurance policy) after an illness or accident leaves him or her with partial or full physical or mental impairment. These can possibly cover necessary activities like dressing, eating, walking, climbing and the ability to take independant decisions. People who are not able to return to their previos occupation or any form of occupation for genuine reasons other than accidents or illness, say, unemployed parents caring for very small children are advised to apply under the ADL scheme as their claims will most likely be rejected if applied under other types of incapacity claims.

Suited occupation – If the policyholder is unable to return to a form of occupation that is in line with the policyholder's education, skill and institutional training, then the policyholder might be considered eligible for a claim on his policy under the 'suited occupation' clause.

Any occupation – If the policyholder is rendered incapacitated after a debilitating sickness or accident and is unable to perform any sort of wage-earning occupation at all, he or she might be able to file a claim under the 'any occupation' clause of his/ her Income Protection Cover policy.

Income Protection Cover schemes are generally very closely regulated due to the fact that they can be easily exploited or otherwise taken advantage of. Just to cite an example, an Income Protection Cover policy might stop covering the policyholder as soon as he or she loses a permanent employment opportunity. Any negative salary fluctuation can also affect an Income Protection Cover scheme negatively even to the extreme extent cancelling insurance coverage altogether. If the insurance company is not paranoid enough to cancel cover, it may instead opt to increase the premium so it reflects the increased risk of the policyholder’s changed financial stability. It should be pertinent to mention that intentional self-injury, criminal activities, pregnancy, drug or alcohol abuse, wars and other kind of situations where a person voluntary exposes him/ her to potentially lethal situations are not covered under Income Protection Cover policy.

As mentioned before, there are many types of Income Protection Cover policies available on the shelves. Each is based on accommodating different needs of customers and their pros and cons need to be evaluated carefully before you finally settle on one type of policy. The basic types of policy available on the shelves are indemnity and agreed value insurance policies. Indemnity value policies are dime-a-dozen in the market and way cheaper than the other type of policy. The insurance agencies can re-adjust offered benefits at periodic intervals for this type of policy based on the revaluation of your income. Indemnity type of insurance policy might not be suitable for people who have an irregular income. As stated above, people dependant on unsteady business returns or farm produce should probably steer clear of this type of policy. People who have the chance of being temporarily or permanently unemployed should not apply for this type of policy either. Neither should people who might be compelled to take forced leaves from employment for reasons such as health, pregnancy etc. But apart from the stated causes this type of policy is great for people with a regular source of income like, government employees. Agreed Value Insurance is way more expensive than indemnity policies but also forces the insurance company to shell out the amount decided upon at the time of filing the policy. This is not affected by any later instability in the earning level of the policyholder. Self-employed people can make major use of this as the value that has been agreed upon in this type of Income Protection Insurance policy is not influenced by the employment status or earning potential of the policyholder. Many superannuation fund schemes put forward Income Protection as a granted even without going through formalities such as medical checks. Apart from these, the other classification of Income Protection Cover policies can be done as follows:

Renewable Income Protection Cover – Renewable policies are generally the hot cakes among insurance policies as they make available to the policyholders the decision to renew their policy. The renewed policy can even perhaps comprise of a boost to the coverage sum of the policy. The renew period is set at a regular interval that the insurance company will let you know about. The policy can be renewed automatically although the premium rate might increase. The premium rate is calculated based on the current market rate for such insurance policies. This is better than fixed Income Protection Cover policy in as much as the initial premiums are kept low due to their progressively ascending nature. But chances are that the policyholder will fall in a progressively advanced risk category for insurance that is calculated based on the policyholder’s age and health conditions which means that you might well bear the brunt of the highest amount of premium in your 50’s or 60’s.

Increasing Income Protection Cover – Fixed-benefit income protection policy have lower premiums but often come with the added disadvantage that their value of benefits often become too meager to support substantial needs due to inflation by the time the claim for the insurance policy is made. This makes Increasing Income Protection Cover policies a tempting option to look out for. Best thing is that there are customizable varieties available for this form of insurance and you can just pick and choose one that you think will suit your needs. There are policies whose returns augment in accordance with a fixed percentage, or a tailor-made percentage decided upon by the policyholder with the approval of the insurance agency at an episodic interval. They can also increase based on an indexed rate, which is normally calculated according to indexes like the Retail Prices Index. On the flip side, the increasing benefit insurance policies come only with the added disadvantage of increasing premiums to account for the increased insurance risk of the policyholder.

Group Income Protection Cover – The office that you work at might decide to endow their employees with a collective Income Protection Cover policy. This is generally perceived to be a tax-deductible company expense by organizations. This is normally a supplementary taxable benefit with regards to the employee, but a maximum payout period may be applicable. The best part of this is that the claimed amounts for Group Income Protection Cover policy are not bound by income tax or National Insurance compulsions. Please keep in mind that the policy can cease to exist immediately if the employee voluntarily or involuntarily stops to work for the organization that supplied the premium for the policy. Due to the very nature of Group Income Protection Cover policies, i.e. because the contract for the policy is among the employee’s organization and the issuing insurance agency – it is very important that both know exactly who your nominees are in the chance of any problem that renders the policyholder incapable of filing a claim.

Unit-linked Income Protection Cover – Although a bit of a gamble as like no other Income Protection Cover policies these have an investment attribute attached to them and have a surrender value. Characteristically, the premiums taken for these policies by the issuing insurance agency are used as open-ended investments that are administered over and promoted by the same insurance agency. They also have the right over any assets amassed from the investments on behalf of the policyholder. The policyholder does not have possession of the assets or investment units and they cannot be redeemed at a short notice like other investments. However the policyholder has the right to the benefits amassed from the assets. Due to the nature of expenditure-based insurance, the premiums for Unit-linked Income Protection Cover policies are normally higher than usual policies. Premiums can be even higher if the investment fails to perform up to expectations and the policyholder might be forced to pay for the deficits. The combined investments are normally not safeguarded by a watchdog body like in other forms of investments, but insurance companies tend to normally look after investments with transparency and are well-regulated units by themselves. Their reputation in the market depends on this management.

Please keep in mind that the information provided above are only the first few steps of research in finding a suitable Income Protection Cover product in the market. You must look further and probe deeper before applying for one.