Income protection insurance varies a lot between companies. This variation is not restricted to price, although this too can be an important factor, but in definition of the policy terms lies the differences in price. The definition of what constitutes a person becoming disabled is just one such example, this means that where you could be considered for income protection under one policy you might not under another. Other inconsistencies between companies can be found with the different benefits they offer, the various options you may be given and of course the policy’s own flexibility.

Calculating the Right Income Protection Insurance Policy

All this means you must approach income protection insurance carefully and know exactly what you are signing up for instead of accepting the first offer put to you because of its low premium. The other important matter you must consider carefully is the amount of income protection insurance you actually need. This can be made easier with the use of an income protection insurance calculator. Such a calculator can assist you in arriving at a decision of how much you will need to receive in benefits, while waiting to be in the position to resume working and earning your own income once again.

Once again, however, income protection insurance calculators themselves vary from company to company. Many can be construed so that you are encouraged to take out a much larger cover than you actually need. This may be welcome if you get to make a claim but in the meantime it can be unnecessarily expensive. In order to get some fair balance from an income protection insurance calculator it will pay you to keep the following tips in mind:

• The amount of time you feel you will need to have the benefits paid. This is not easy to guess because if you are off work for a broken leg you may be ready to resume work again after a lay off of four to six months but if you were to be diagnosed with cancer the length of time you will be incapacitated may be unknown. This decision is important in that it can lead to big differences in premium costs. Many people are satisfied with only receiving benefits for 12 months, others 5 years, some until retirement. Whatever you consider an appropriate lay off period in your particular case, you will find an income protection insurance calculator will be able to give you the different calculations you will need to allow you to make an educated choice, balancing what you can afford with what you need.
• The percentage of your earnings you are willing to accept as a replacement income while being unable to work. This is necessary because if you want 100 percent of your income to be replaced it will be quite expensive. Much of your regular income will go to savings, entertainment and other areas that you can forego during the period you are disabled. Therefore you will not necessarily need your full income to be replaced. Whatever figure you finally choose an income protection insurance calculator will give you the different levels of premiums you will have to pay in order to receive the benefits you need. It is probably appropriate to repeat here the old saying that there is no such thing as a free meal, you only get what you are willing to pay for.
• The circumstances you will be insured against. It is of little benefit if you have an income protection policy that gives you great cover if you happen to contract gangrene of your lower left ear but you live in a country where gangrene is unknown. You will need to have the widest cover possible with no small print clauses that will prevent you from receiving benefits where other policies would happily pay. An income protection insurance calculator will identify these anomalies and how the premium cost will be effected.

Behind the Income Protection Insurance Calculations

Income protection insurance premiums are usually tax deductible and the benefits are normally paid on a monthly basis for the duration of the illness, in preference of paying any proceeds as a lump sum payment. It is not common for these types of insurances to pay any more than 65 to 80 percent of your average monthly earnings as it is believed that there must be an incentive for a person to return to the workforce once he or she has recovered. Many income protection insurance policies can be altered to include life insurance, lump sum payments for total and permanent disablement and trauma cover.

If you remain in doubt about the necessity of income protection insurance all you need do is to take the time to think about what would happen if the main income earner in your family was involved in an accident or contracted an illness where he or she couldn’t work of a period of time. Would you be able to adjust to the loss of income involved, especially if it was going to last over a long period of time and all your savings became used up? Without income protection insurance would you be able to meet all your day to day costs such as the paying of your mortgage or rent? Then there is always electricity, car payments and gas bills to worry about, not to mention the costs of entertainment, luxuries and holidays.