When thinking about buying income protection insurance, it is worth considering the two types of income protection: short-term and long-term. While this article is going to be mainly about long-term income protection, it will also include information about short-term protection as well, to give you the opportunity to compare the two.
- What Is Long-Term Income Protection Insurance?
Income protection insurance is a way of protecting your income if you are sick or incapacitated. The difference between short-term and long-term income protection is that short term protection normally lasts up to a maximum of five years, whereas long-term income protection will last for as long as you are unable to work.
In most cases, there are only two real differences between short-term and long-term protection. One is the time frame. The other is that because long-term protection could last decades, the premiums will be higher because the risks of you being ill are far greater.
- How Does Long-Term Income Protection Work?
Income protection works by paying out a monthly income if you become incapacitated or are too unwell to work. In other words, there is no lump sum paid out if you are sick.
However, even though there is no lump sum, being paid a monthly income is, in many ways, a much better idea. You’ll get roughly the same amount of money as you got when you were working, so you can be reasonably certain that any monthly payments you have to make will continue to be paid.
- What Does Long-Term Income Protection Cover?
Long-term income protection will cover pretty much any illness that stops you from working for any length of time. Also, it will cover you for any disabilities you might get, which are normally treated in the same way as recoverable illnesses. Additionally, it will pay out for any accidents that incapacitate you.
What makes a long-term income protection policy so attractive is that it will pay out for as long as you need it, right up to when you reach the age of retirement. In fact, it’s possible to have long-term policies that continue for longer than that, but bear in mind that as you get older, the longer the policy lasts, the more expensive your premiums will be.
- What Doesn’t Long-Term Income Protection Cover?
It’s also worth considering what long-term income protection will not cover. There are the standard exclusions such as becoming sick through drugs or alcohol abuse, not being able to work due to self-inflicted injuries, and any incapacitation caused while in the pursuit of a criminal activity. Pre-existing conditions are important as well but are a trickier problem to write about here. While a pre-existing condition doesn’t necessarily mean that you won’t be covered, what will be taken into account is when you last had the illness.
For example, if you had the illness more than five years ago, and haven’t received any medication, medical attention or days off work for it since then, then there is a good chance that your insurance company will not be too troubled by it. If you have had it more recently, the insurance company may just exclude it from your policy or may say that you have to wait a certain amount of time before you can claim for that particular illness.
- Should You Get Long-Term Income Protection?
Whether you should get long-term income protection or not is really one of those questions that is entirely up to you. Having long-term income protection means that you can sleep easily at night. Knowing that, no matter what happens to you, your mortgage payments, car loans, paying for the kids and the shopping will all be taken care of would make most people sleep soundly at night.
Another one of the big benefits of long-term income protection is that you have the option to have a policy that will continue to pay out until you are well enough to do the job you were paid to do before you got sick. This means there is much less risk of you having to take up a job that pays less than the job you were doing before.
- Who Shouldn’t Get Long-Term Income Protection?
Quite honestly, anyone who is working should. However, while there are many benefits to long-term income protection, for some people it may not be the right insurance for them. For example, if you have a high level of savings and you don’t mind using them if you become sick, then having long-term income protection might not be the best use of your money.
You may also be lucky enough to have an employer who looks after their employees well, in which case, you may have a good income protection policy already taken out by your company. So, before you start paying premiums for any income protection policy, you should speak to your HR department and see if they have anything that will protect you in the long-term.
- How Much Does Long-Term Income Protection Cost?
This is yet another one of those questions that is very difficult to answer. This is primarily because there are so many different factors that go into deciding how much your premiums will be. There are seven main factors that will affect how much you are likely to pay.
- How much you will receive when the policy starts paying.
- How long before the policy starts paying out.
- Whether you are prepared to take up other jobs or you will only return to your specific occupation.
- When the policy stops paying out.
- How old you are.
- How healthy you are.
- Whether you smoke or not.
The best way to find out how much your long-term income protection will cost is to shop around and see which company offers the best policy for the least amount of money.
Wrapping Everything Up
Which? magazine reckons that a long-term income protection policy is the one type of insurance that everyone should have. So, with that thought in mind, if you don’t have any long-term income protection insurance yet, now might be the time to look into getting it