Financial stability is one of the most crucial aspects of ensuring a secure future for your family. Income protection insurance is designed to safeguard this stability by providing a financial cushion when unforeseen circumstances prevent you from earning a regular income. This type of insurance policy acts as a safety net, replacing a portion of your lost income and ensuring that your family can maintain their standard of living even when times are tough.
What is income protection insurance?
Income protection insurance is a policy that provides regular payouts if the policyholder becomes unable to work due to illness, injury, or other conditions. Unlike a one-time payout associated with term insurance plans or a life insurance policy, income protection offers an ongoing financial benefit for a specific period or until the policyholder can return to work.
This type of insurance is crucial for those who rely heavily on their monthly salary to support their household expenses. The payout from an income protection insurance policy helps cover day-to-day costs, including mortgage or rent payments, utility bills, and other essential living expenses.
How income protection insurance works?
Income protection insurance typically covers a percentage of your pre-tax income, ranging from 50% to 70%. The policyholder receives regular payments, either on a monthly or bi-weekly basis, depending on the terms outlined in the insurance agreement. The payments can continue for a set number of years or until the policyholder reaches a specific age, such as retirement age.
To activate the policy, the insured must provide evidence of their inability to work due to a valid medical condition. Once approved, the policy starts paying out according to the terms of the plan. It is essential to understand that there is usually a waiting period before payments commence, which can range from a few weeks to several months.
Key benefits of income protection insurance for your family’s financial stability
Income protection insurance offers a wide range of benefits that enhance the financial stability of your family:
- Regular income replacement: The policy ensures a steady flow of income, enabling your family to continue meeting their financial obligations even when your primary source of income is interrupted.
- Reduced financial stress: Knowing that your income is protected can alleviate significant financial anxiety, allowing you and your family to focus on recovery and other important aspects of life.
- Maintained standard of living: The payouts help cover essential expenses such as mortgage payments, educational fees, and daily living costs, ensuring that your family’s lifestyle is not drastically impacted.
- Customisable policy options: Income protection insurance can be tailored to meet specific needs, including the waiting period, benefit period, and level of coverage.
Comparison with term insurance and life insurance policy
While term insurance plans and life insurance policies provide valuable financial security, they operate differently compared to income protection insurance. Term insurance plans offer a lump-sum death cover if the policyholder passes away during the policy term. This benefit is intended to support the family by covering long-term expenses such as mortgage repayments or future education costs.
On the other hand, a life insurance policy may include both death and maturity benefits, providing financial security and savings for the policyholder’s family. However, neither term insurance nor life insurance is designed to replace a policyholder’s income if they are temporarily unable to work due to an illness or injury.
Income protection insurance fills this critical gap by offering a continuous stream of income during a period of disability, which term insurance plans and a life insurance policy cannot provide. This makes income protection an essential addition to a comprehensive financial plan.
How to integrate income protection into your financial plan
When considering a comprehensive financial plan that includes term insurance plans and a life insurance policy, adding income protection insurance is an excellent way to enhance your family’s financial security. This insurance complements your existing policies by addressing a unique risk: the potential loss of income due to temporary inability to work.
To choose the right income protection insurance, it is essential to evaluate the following:
- Coverage amount: Decide on the percentage of income you want the policy to cover. While 70% is common, some policies may offer more or less, depending on your financial needs.
- Waiting period: Select a waiting period that suits your circumstances. A shorter waiting period will start payments sooner but may come with higher premiums.
- Benefit period: Determine how long you want the policy to pay out—options can range from one year to until retirement age.
Conclusion
Income protection insurance is a vital addition to any financial plan, offering peace of mind and a steady flow of income when unforeseen circumstances prevent you from working. Unlike term insurance plans or a life insurance policy, which provide lump-sum payouts, income protection ensures that your family’s day-to-day expenses and financial obligations are covered during difficult times. By integrating income protection insurance with your existing financial products, you can build a comprehensive safety net that secures your family’s future.
Disclaimer: T&C Apply – Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third-party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Future Generali Life Insurance Company Limited, Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Limited, ICICI Lombard General Insurance Company Limited, HDFC ERGO General Insurance Company Limited, Tata AIG General Insurance Company Limited, The New India Assurance Company Limited, Cholamandalam MS General Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited, Manipal Cigna Health Insurance Company Limited and Care Health Insurance Company Limited under the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer’s website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. URN No. BFL/Advt./23-24/573
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