How long is income protection paid for?
25 Sep 2020
Anyone employed knows the joy of payday - waking up in the morning and remembering that your days of checking your bank account and working out if you can afford to treat yourself to a meal deal at lunch time are over for at least a few more weeks.
Imagine how devastating it can be when our income is taken away from us for a reason that’s totally out of our control, such as a serious illness or injury that prevents us from working. That’s why income protection is around! So, how does this insurance product work and how long can you expect to rely on it for?
A little bit about income protection
Income protection, well, protects your income. It’s quite simple. If you find yourself unable to go to work due to serious illness or injury, you can claim on your income protection policy and receive monthly payments to replace a percentage of your income - usually between 50-70%.
You can claim on an income protection policy as often as you need to until your policy comes to an end - just as you would with something like car insurance.
When will I start receiving my income protection payments?
If you successfully make a claim on your income protection policy, you won’t receive your monthly payments straight away. When you take out your policy, you decide on something called a ‘deferral’ period. This is the amount of time that will pass upon your claim, until your payments begin. This could be as short as four weeks or as long as two years - you decide when you take out your policy. The shorter the deferral period, the more you’ll pay in premiums. Typically, a deferral period is around 13-52 weeks.
The deferral period exists because many income protection policyholders don’t actually need to receive money from their policy immediately if they do make a claim. They are likely to be eligible for Statutory Sick Pay (SSP) or sick pay from their employer, which can tide them over initially. When deciding on the length of your deferral period, find out what you are entitled to in terms of sick pay and assess what savings you have/can cobble together to fall back on for this initial period. The longer you can make this pre-agreed amount of time, the higher the chances of you lowering those monthly premiums.
How long will the policy actually pay out for?
This all depends on your individual policy - every policy is slightly different. You can choose how long your policy pays out for. That being said, your policy will only pay out for as long as you need it to, also. When you are declared fit to work again, you reach retirement or you pass away, your payments will stop.
Income protection policies can be divided into two general types: short-term and long-term. If you choose a short-term policy, you will only receive an income for a preset limited time. This is usually 6-12 months and is the cheaper option. Long-term policies will pay you for as long as the policy allows - that could be right up to your retirement or as long as 40 years.
Generally though, you should be able to tailor your income protection policy to pay out for as long as you need it to. Enlist the help of a life insurance broker such as LifeSearch and we’ll be able to help you find the right cover. There are a few different ways to contact us - you can phone, request a call back, email or drop us an online enquiry. Take your pick!