Income protection insurance

Income protection insurance

 Protecting one’s financial security during uncertainty and unforeseen difficulties has never been more important. The ability to make a consistent income is the cornerstone of financial security, making it essential to protect this important facet of our lives. Enter income protection insurance, a crucial financial tool created to protect people and families from the effects of unanticipated interruptions to their revenue streams. 

What is income protection insurance? 

A financial safety net called income protection insurance, or disability insurance or income replacement insurance is made to replace a part of your income if you cannot work because of illness or injury.  

In case their primary source of income is under threat, this insurance gives policyholders the money they need to cover necessary needs like rent or mortgage payments, electricity bills, groceries, and other recurring expenses. 

Understanding income protection insurance  

Understanding the elements of income protection insurance is important to understand it completely. The elements of income protection insurance are: 

  • Coverage duration 

Policies for income protection insurance normally offer protection for a predetermined time frame known as the benefit period. Depending on the policy, this time frame may range from a few months for some to retirement age for others. 

  • Waiting period 

Policyholders must suffer a waiting period, commonly called the elimination period, before benefits accrue. Depending on the terms of the policy, this can last from a few weeks to several months. The premium is often smaller the longer the waiting period. 

  • Benefit amount 

Your pre-disability earnings are often used to calculate the income the insurance policy will replace for you. The benefit amount may be between 50% and 80% of your revenue. 

  • Premiums 

Policyholders must pay recurring premiums to keep their coverage in place. Age, health, occupation, and the selected coverage level can all affect premiums. 

Working of income protection insurance 

  • Purchase of policy 

A person interested in Income Protection Insurance applies for a policy with a provider of insurance. During this process, they select the appropriate coverage level, benefit term, and waiting period. Age, health, and occupation are among the characteristics that are taken into account while calculating premiums. 

  • Policy activation 

The insured person pays recurring premiums to the insurance provider after the policy is in effect. 

  • Disability or illness occurs 

If a covered disease or injury results in the insured person’s inability to work, he must fulfil the waiting time outlined in the policy. 

  • Benefit payment 

The insurance provider begins regularly paying benefits to the covered person after the waiting period has expired. Until the insured person is well enough to return to work, the benefit period has expired, or both, these payments often continue. 

Types of income protection insurance  

  • Short-term income protection insurance 

This kind of policy offers benefits for a short while, frequently up to two years. It is appropriate for anyone searching for short-term protection while recovering from an illness or injury. 

  • Long-term income protection insurance 

Long-term insurance provides a safety net for people with more severe and protracted disabilities by offering extended coverage, sometimes up to retirement age. 

  • Group income protection insurance 

Group insurance covers a group of employees within an organisation and is frequently offered by employers as a part of their employee benefits package. The coverage is often for a specified percentage of the employee’s pay, and premiums are frequently lower than those for individual insurance. 

  • Mortgage payment protection insurance 

This particular type of income protection insurance is made to pay for mortgage payments in the event of sickness or unemployment. It is created to aid homeowners in keeping up with the upkeep of their homes during trying times. 

Examples of income protection insurance 

Let us take the example of a working professional who cannot generate a regular wage owing to an unanticipated illness. After waiting, income protection insurance provides monthly payments to cover necessities, including housing, bills, and medical expenses.  

This crucial financial safety net frees people from additional stress so they may concentrate on healing. It emphasises the crucial role of such insurance in preserving financial stability during unplanned life events, giving policyholders and their families protection and peace of mind. 

Frequently Asked Questions

Income protection is a financial aid that ensures people get regular income when they can’t work because of illness or injury. Paying for necessary expenses during trying times contributes to maintaining financial stability. 

 

Life insurance and income protection have different objectives. Income protection offers financial assistance during illness or injury, temporarily replacing lost wages. In contrast, life insurance pays out a lump amount to the beneficiaries upon the insured’s death. Life insurance is largely intended to protect loved ones financially when a person passes away, whereas income protection is for the policyholder’s well-being while they are still alive. 

A set of rules and regulations established by the government or a company to influence, control, or enhance the distribution and stability of income within a specific economic system or organisation is sometimes referred to as an income policy. 

Income protection is a broad notion that includes the assurance of financial stability if a person’s ability to carry out employment responsibilities, keep regular working hours, and earn money is unexpectedly disrupted. When someone cannot work due to illness or accident, it is a critical financial safety net, supplying a portion of their income to cover necessary financial responsibilities. 

Regardless of the precise medical condition, income protection insurance offers a consistent revenue stream when a person cannot work because of illness or injury. However, regardless of the policyholder’s capacity to work, critical illness will provide a lump sum if they are found to have one of the specified critical illnesses. 

Related Terms

    Read the Latest Market Journal

    Unlocking Stock Market Potential with AI

    Published on May 24, 2024 29 

    Introduction of AI In the world we live in today, artificial intelligence (AI) is almost...

    Financial Sectors Thriving: Top Traded Counters in April 2024

    Published on May 21, 2024 76 

    At a glance: The Federal Reserve (Fed) held interest rates steady at 5.25% to 5.5%...

    One Dollar at a Time: The Potential of Fractional Shares

    Published on May 20, 2024 72 

    Table of contents 1. Introduction 2. Dollar-Cost Averaging 3. Popularity of Dollar-Cost Averaging 4. Small...

    Unit Trusts vs Exchange Traded Funds (ETFs) – Which is better for your portfolio?

    Published on May 20, 2024 74 

    Imagine you are dining at a nice restaurant, feeling overwhelmed by the variety of seemingly...

    Weekly Updates 20/5/24 – 24/5/24

    Published on May 20, 2024 20 

    This weekly update is designed to help you stay informed and relate economic and company...

    What is CFD? With 2 Practical Examples

    Published on May 15, 2024 105 

    In this article, you will learn what CFD (Contract for Difference) is, the costs and...

    What is ESG investing, and why is it important?

    Published on May 15, 2024 105 

    Over the last five years, Environmental, Social, and Governance (ESG) investing has evolved from being...

    What are fixed-income funds?

    Published on May 15, 2024 60 

    In the diverse world of unit trusts, various funds employ distinct investment strategies aligned with...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you

    IMPORTANT INFORMATION

    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  

     

    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com