Income protection is a type of insurance policy which pays a monthly benefit if a person has been unable to work because of sickness, injury, or retrenchment for a certain period of time. He could receive the benefits until he fully recuperated or until retirement. However, there are certain terms and conditions for each policy.

As per government regulation, income protection can be had until the retirement age of 65; and you have to pay extra premium if you wish to be covered beyond that age.

It should also be noted that after receiving the initial payment after a claim, there is a certain period of waiting called the deferred period. This would depend on the policy and the coverage you have purchased beforehand. The length of the deferred period can affect the monthly premium you have. It means that the longer the deferred period is, the cheaper the premium becomes.

Aside from the regular benefit which is generally around 75% of your total gross annual income, you could also have additional benefits which sometimes come as complimentary like death or surgery benefits.

Types of Income Protection

Income protection premiums may vary depending on the insurance providers. However, there are basically three types of income protection premiums, namely reviewable, renewable, and guaranteed. Below is a brief explanation of the differences.

• Reviewable premium. This type of premium is similar to a fixed policy. Just like the name suggests, reviewable income protection premiums are reviewed every few years determined by the insurance provider. This is the type of income protection premiums which begins with a low premium but increases overtime as reviewed. Under this category, a premium can be changed based on a broad spectrum of factors like modification of claims, changes to expenses beyond one’s control, how long a customer plans to keep the policy, and investment returns expectations.
• Renewable premium. This is a variation of the reviewable premium where a policy is reviewed every time it is set for renewal. This could be a set number of years around 1 or 5 years. The policy holder can renew their policy for a given period of years, usually until a person reaches 95. However, the premium increases every year which goes beyond the cost of a premium policy. This increase in premium also means higher benefits are paid when you make a claim.
• Guaranteed premium. This tends to be the most expensive premium upon purchase. The reason for this is because your premium is fixed no matter how long the term of the policy is. Since the premium does not change, it gives the policy holder a certain level of security because he knows what he expects to pay every month for the whole length of the contract. The only possible reason a guaranteed premium can change is when you change the amount of the cover, or when you have an index-linked policy.

The argument about which premium is better still goes on. If one opts for a reviewable premium, they could start out cheaper, but has to pay more as the premiums increase upon review. A guaranteed premium, on the other hand, may be expensive initially but remains the same until the full length of the coverage.

The verdict would be reviewable premiums are much preferred for those who are under a tight budget because of its low initial payments. But in terms of medium to longer periods, reviewable premiums tend to be more expensive than guaranteed premiums.

Comparing Income Protection Policies

No matter how income protection premiums may vary, there are still some key points you may want to consider before purchasing a certain income protection insurance policy. The following points could help you identify what a good policy is and get the best benefits at a competitive price.

• A good policy is one which has an extended coverage until 75 years of age and could cover up 75% of a person’s annual gross income with around 8% of additional benefits. You must bear in mind that a good policy is tax deductible; therefore, you must declare all parts of your income upon initial application.
• A good policy should have additional benefits aside from the basic benefits. Additional benefits might include accident, death, or surgery benefits. Other extra bonuses might include free medical examinations.
• A good policy should have a short waiting period between 14 and 90 days. However, you should keep in mind that the shorter the deferred or waiting period is, the more expensive the premium becomes.

On a final note, a good policy is uncomplicated and easy to understand providing you and your family the security you need for any unexpected happenstance in the future.