Do You Really Need Income Protection Insurance?

Income protection insurance is a type of insurance that pays out if for any reason you are unable to work. The insurance is typically paid out steadily over a period of time to supplement any lost income rather than in a lump sum.

Income insurance is different to life insurance in that the payout does not depend on your death!

There are also several different names for income protection insurance such as

• Permenant Health Insurance
• Long term disability insurance
• Income replacement insurance

These generally all offer the same things - pay you a regular income should you become unable to work because of sickness or injury.You should also be careful not to confuse income protection insurance with loan protection or mortgage protection insurance.

Income insurance will generally pay out when you are classed as "unable to work" . However there are different definitions of being able to do your job for instance you might become unable to do a manual work based job but still be capable of doing an office based job. 

There are generally three definitions of being unable to work:

• unable to do your own job;
• unable to do your own job or a similar one for which you are qualified, and
• unable to do any type of work. 

Choosing the right one is very important as you may find you still have to work in a lower paid, less enjoyable job if you choose "unable to do any type of work" as with disability laws employers will have to work around your disability and it is unlikely unless you are very seriously injured that you will be completely unable to work. 

This does vary from policy to policy so it is important that you check. However, as a general rule income protection insurance will cover up to 75% of an individuals gross income. 

If you are self employed then it becomes slightly more complex, and would generally cover the gross business income, minus the share of business expenses. This will consider financial aspects such as a depreciation, car expenses, donations, and income splitting. 

Generally income protection insurance will not pay out in the following circumstances:

• Being fired
• Redundancy
• Normal Pregnancy
• Disability due to AIDs/HIV
• War
• Self-inflicted injury
• Misuse of alcohol or drugs
• Criminal Acts

Ultimately, whether or not you buy income protection insurance is your decision. It will depend very much on your situation. You need to ask yourself what would you do if you were injured and couldn't do your job?

The type of job you do is going to have a big impact on this decision. Firstly it probably affects the likelihood of your getting injured in the first place, secondly, it may be much more difficult to do some jobs if your were disabled.

For example, if you do an office job and do not generally participate in any other hazardous activities in every day life then the chances are probably in your favour. It is unlikely that you will become seriously injured in the first place and even if you are office jobs are generally not very physical and you will probably still be able to work at least in some capacity.

On the other hand, if you do a very physical or hazardous job then the chances of you becoming injured are obviously much higher. In this case you might easily find yourself in a situation where working is very difficult or impossible and having income protection insurance could really improve your quality of life.

Likewise if you do a relatively non-physical job yet enjoy partaking in any hazardous activities (think motorbiking, skiing, horse riding etc) then the chances of you getting injured increase significantly. While you may not be injured to the point of not being able to do your job, it could become quite unpleasant and having income protection insurance that covers you no matter what could be a good idea.