Different Kinds of Income Protection — Which to Choose?

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According to a Fortune article from just last year, roughly 40 percent of people in the U.S. are only a single paycheck away from poverty. The financial uncertainty of the average American is further highlighted by a Forbes article from around the same time that reported that 78 percent of American workers were living paycheck to paycheck.

These statistics are unsettling, to say the least. For ultimate financial security, it can be a great idea to look into an income protection insurance plan.

What is an income protection plan?

Income protection insurance gives you some financial security if you become unable to work due to an illness or injury. Generally, it is given as a monthly benefit that is up to 75 percent of what your regular income was.

According to Choice, income protection insurance is “often overlooked” due to the fact that it isn’t “the cheeriest thing to think about.” However, income protection insurance can be useful. Especially for those lacking dependents, but still needing to pay the costs of living.

Choice recommends shopping around for income protection plans because premiums can vary greatly. By comparing income protection insurance with iSelect you can find the best insurance company for your future expenses.

What do you need to consider?

Before applying for income protection insurance, it’s important to evaluate what benefit amount you will need in case you become unable to work. If you’re in a two-income home, consider what your current salary is covering.

Ask yourself these questions: Does your income cover the mortgage or rent? Does your income pay the premiums to your insurance company for insurance you already have (such as car insurance, renter’s insurance, homeowner’s insurance, etc.)? Do you have good medical insurance? Does your income pay that bill as well? What other expenses is your salary paying for?

Other considerations include:

Redundancy insurance:

According to Compare the Market, in some cases, you can receive a redundancy payment. This is unlikely, but it some cases, you can be eligible for redundancy insurance and use this money for further education to switch career paths after short-term disability benefits run out.

Disability insurance:

Another thing to consider is what kind of coverage you may already have. For example, depending on your own occupation, you may already be eligible for disability insurance through your work. It’s important to take into account what disability benefits you already have through your work.

Mortgage protection insurance:

Another form of disability insurance you may be eligible for is mortgage insurance protection. In this case, your mortgage will be covered in the instance of your death (so that your partner/family isn’t left without anywhere to live) or if you become critically ill or permanently disabled. If your income mostly only covers your mortgage payments, this could be another option for income protection.

Does this money count as taxable income?

In most situations’ income protection premiums qualify to be a tax deduction.

The Bottom Line

Some people avoid income protect and disability insurance because it seems unlikely, they’ll need disability income insurance and they don’t want to pay the premiums. This is an understandable stance to take. However, most people who end up in need of disability insurance probably didn’t think they’d need it either.

According to a Business Insider article from earlier this year, the most common disability insurance claims after work-related musculoskeletal disorders (such as carpal tunnel, chronic back pain, and tendinitis) are cancer, pregnancy, anxiety, and depression. According to the article, all these issues can happen quickly (and without warning) and will make it nearly impossible for you to work. Also, in a lot of cases, these issues will not be covered by social security disability benefits.

Regardless of your own occupation, you should look into long-term disability coverage if you’re the “breadwinner” in your family, if you’re paying off debt, if your employer doesn’t offer coverage (or enough coverage), or if you’re self-employed.

Finding the right insurance company to get you the coverage you need for income protection and disability insurance with premiums you can afford is the best way to have financial security and peace of mind. Compare plans with iSelect for the best options.

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