Income Protection Insurance is a policy that will pay benefits to policyholders who encounter illness, injury or disability causing them to be unable to work. The policy will protect the beneficiary until they are able to return to work, they retire, or the contract term expires. As long as the policyholder continues to pay the premium of the policy, the insurance company cannot cancel or refuse to renew the policy. The benefits of this policy are payable when the policyholder becomes incapacitated.
Incapacity is defined against these criteria:
* Own Occupation:
The policyholder is considered incapacitated if they are unable, following said injury or illness, to perform their own occupation and are not working in another job.
* Suited Occupation:
The policyholder is considered incapacitated if they are unable, following said injury or illness, to perform a suitable occupation with respect to their education and training.
* Any Occupation:
The policyholder is considered incapacitated if they are unable, following said injury or illness, to perform any occupation.
* Activities of Daily Living (ADLs):
The policyholder is considered incapacitated if they are unable, following said injury or illness, to perform functions of their daily life. These include: dressing oneself, bathing, eating, shopping, cooking, etc. The definitions of these activities will be specific to each policy.
Each policy for Income Protection will have certain restrictions on payouts as well. Some of the common restrictions include:
* Policyholder becoming unemployed for any reason other than injury or illness.
* The deferred period (amount of time between commencement of the claim and payment of benefits) can be quite long, typically a minimum of 4 weeks, sometimes as long as one calendar year.
* Exclusions apply to most policies, so that no benefits will be payable for an accident or illness due to abuse of drug or alcohol, criminal acts, intentional self-harm, and pregnancy.
* Maximum payment is typically restricted to increase policyholder motivation to return to work.
* Changing occupation may invalidate policy, or require amendments to be made.
Provided below are some definitions of terms that are common to Income Protection Insurance.
* Benefit Limits
Policies limit the benefit payable to the policyholder to a certain percentage of gross earnings. The limit is typically 70 per cent of gross earnings, but for those earning a high-yearly income, it may be less.
* Deferred Period:
The time between the filing of a claim and the first benefit payment. When the policy is established, the deferred period is decided upon (minimum of 4 weeks) and depending on the length, the payments of premiums may be higher for those policies having shorter deferment periods.
* Proportionate Benefit:
Policies paying a reduced benefit if the policyholder accepts part-time work or lesser-paying employment after recovering from said illness or injury.
* Free Limit:
The Income Insurance Policy will be valid only while the policyholder is a permanent resident of the area defined in the policy.
Income Insurance Policies meet the need of the employed to protect their assets against any unforeseen injury or illness. The benefits provided by the state, including statutory sick pay and the incapacity benefit) typically fall below the income earned by the average citizen.
This additional insurance will aid in protecting assets such as the home of the policyholder, automobile, etc. However, additional insurance such as Mortgage Payment Protection may be necessary to fully protect all assets. Income Protection Insurance is also not a substitute for health insurance or life insurance.