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Income protection insurance policies
An Introduction to Income Protection Insurance Policies and Premiums

There are various options open to you when it comes to choosing income protection insurance policies and, of course, the cost of your income protection insurance premiums may well be decided based on the option you choose here as well as on your own specific circumstances. Your primary options include:

  • Illness/accident:  The income protection insurance premiums you pay will go towards providing you with a replacement income if you cannot work due to illness or injury. This is the benefit given with the majority of insurance policies that fall under the income protection umbrella.

  • Redundancy/loss of job:  Some policies will also give you coverage if you lose your job under certain conditions. The coverage you get will generally not work on as long-term a basis as standard income protection insurance policies.

  • Loan repayments:  Some policies are specifically set up to give income protection insurance policies to a type of loan such as a mortgage, for example. Payments will be given to repay the specific financial commitment and will last for short-medium periods of time.

Once you have chosen the form of income insurance that suits you, then you will need to start comparing policies and premium costs. Understanding the way that income protection insurance premiums are worked out and charged can be confusing, so let’s look at the main factors here.

Understanding your income protection insurance premiums

Most insurers will not give a fixed rate for every premium that is charged for all of their income protection insurance policies. The way that premium payments are worked out will vary from insurer to insurer and may well be based on other factors such as how high a risk you pose. So, for example, an insurer may use the following factors to figure out your premium costs:

  • Age

  • Sex

  • Employment status

  • Employment type

  • Lifestyle and health

So, on that basis, the premium payments for a self-employed smoker would generally be higher than for a non-smoker who works in what is considered to be a ‘safe’ job. This information simply tells the insurance company how much of a risk it is that you might fall ill or have an accident and make a claim on your policy.

Insurers also often charge on a ‘per monthly’ basis. So, you may, for example, be quoted a rate per $100 of monthly benefit. The rate that you are charged per this $100 may well vary according to your personal circumstances and the information that you supply to the insurance company.

Most companies offering income protection insurance policies will charge premiums on a monthly basis. Keep in mind that most will also impose limits on the amount of coverage that your income protection insurance premiums can buy. This is often worked out as a percentage of your salary and/or a maximum sum. So, it is unlikely that income protection insurance policies will give you coverage for your entire salary. But, the income protection insurance premiums that you pay for coverage could well be worth your while.  If you are not working then you probably won’t need as much money as if you were working and this kind of protection will at least take away any financial worries you may have.  

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