Income Protection Insurance: Factors Affecting its Cost

In these times of financial uncertainty, protecting your income from illness, injury or disability is a very smart and lucrative strategy to make. Since you won’t be able to work while you recover from your illness or injury, purchasing income protection insurance would give you the assurance that you will receive a stable income similar to what you earn.

What is income protection insurance?

Income protection insurance is a type of insurance policy designed to provide a tax-free monthly benefit to insureds who are unable to work due to illness, accident or disability. However, there is no actual list of stipulated events by which you can apply for insurance. Essentially, it is anything that prevents you from working. It is considered one of the best types of insurance, especially for workers, because it gives the insured the freedom to focus on getting better rather than worrying about where the money is coming from to pay their day-to-day bills such as mortgage, groceries or utilities.

How much does income protection insurance cover?

As a general rule, the maximum coverage for this insurance is usually 75% of your gross income. However, the amount of coverage is determined by the salary you wish to insure. That’s why you should consider the level of income protection you need, taking into account the costs of paying off a mortgage and other debts, paying bills and daily utilities, providing a spouse, children or other dependents, and maintaining your assets. and investments. Remember, the purpose of having this insurance is to ensure that you will have an income stream when you are temporarily unable to work.

The length of coverage (when you will receive payments) will depend on the length of the contract. This can be: for the entire duration of the incapacity to work and therefore the inability to work until the first death, recovery of health, retirement or duration of the contract. You will receive regular payments (usually weekly or monthly) and are tax-exempt.

How much does income protection cost?

The cost of this insurance varies depending on a number of factors:

Your occupation

In terms of profit, potential customers are classified by insurers according to the probability of a claim in their sector of activity. Different insurers have different ideas about what the profession involves more risk than others.

Low-risk occupations are likely to have lower premiums. This applies to people whose jobs involve little or no manual labour such as administrative staff and managers. On the other hand, high-risk occupations, including skilled and unskilled manual workers, are likely to be subject to higher premiums. This is because skilled manual workers work with heavy or dangerous equipment that naturally exposes them to a higher risk of injury.

Your annual income

A buyer may have to pay 1% -3% of their annual income on the premium, although this depends on the policy chosen by the buyer. A buyer must declare all components of his income if he wishes to obtain a correct estimate since income protection coverage is tax deductible.

Deferred period/waiting period

The longer the waiting / deferral period chosen, the lower the premiums to be paid. So, if you can survive financially longer without being able to work and without your income protection paying you or your employer’s generous sickness benefit, it is advisable to choose a longer deferred period such as one year.

However, if you find that you cannot manage without your payments, choose a shorter deferral period, for as little as four weeks.

Age and gender

Because a person’s body naturally deteriorates as one ages, an older person is likely to pay more than a younger person in the same position.

Insurance companies will perceive a person in his or her fifties as a higher risk and, therefore, can expect to pay more for their insurance.

Similarly, a person’s gender may also affect the number of premiums. Women are likely to be subject to higher premiums than men. This is because women would be more likely to claim income protection insurance than men and would be more likely to take early retirement and take time off work to care for children or relatives.