The Pros and Cons of Income Protection Insurance

Income protection insurance may be an old concept that you have had imbedded into your head, or it may be a new concept with which you are unfamiliar. Either way, it is an important policy that you should consider adding. This insurance policy will replace your income, up to 85%, if you are injured or become unable to work.

As with any other thing that you face daily, income protection insurance has good points. It also has its bad ones. You will need to assess your specific situation when weighing the pros and cons. The bottom line is that income protection insurance should be a natural addition to your insurance portfolio.



  • This type of policy is great for business owners. When you own your own business being forced away for medical reasons not only endangers your basic way of life, but it also affects your business and the people that work for you. You can also add a business owners policy to the income protection, which gives you a payout of the expenses that your business acquires while you are away.
  • Single income earnings can also benefit a great deal by having this coverage. If you have no other types of income coming into your household it would be devasting to be unable to work.
  • You can get a plan that has short term payouts. This means that you get higher payments up front, but you will receive them for a shorter period. Payments that you receive could go on up to a couple of years, at the most.
  • Long term plans can be secured instead of short payouts. These payments are smaller each time, but you can receive them for up to five years.
  • Some policies will also cover the extra costs associated with your injury or illness. A couple examples would be physical therapy that you may need or covering the cost of a walker if you are unable to stand on your own.
  • One of the biggest pros of having an income protection insurance is ease of mind. You will not need to stress about the possibility of getting hurt or falling seriously ill. The bills will be covered so you can focus on getting better.



  • Pre-existing medical conditions will cause a substantial increase in the premiums that you are charged. Coverage may even be denied if you wait too long to try and get coverage. This means that if you try to get a policy after you have been diagnosed with a broken hip you will not get a coverage check while you sit at home healing.
  • Longer waiting periods for the policy to kick in is a basic issue of this type of policy. You will have to be unable to work for a specified amount of time before any payments are made to you. It is important to have some money build up to cover yourself until payments start to come.
  • The fine print can often be overlooked and come back to haunt you. Exclusions and limitations are usually found at the end of contract in small print. Read the entire policy front to back, and side to side.
  • If you do need to make a claim you will need to pay taxes on the amounts that you receive. It is still considered to be an income for you by the government.
  • You may get caught up in the type of policy that you have. A stepped policy will have low premium payments up front but get drastically higher as time goes on. A level policy costs you a set amount each and every payment. This means that it may cost more up front, but if you do not need a claim quickly it will be cheaper for you in the long run.
  • You will need to adjust the coverage every time that a meaningful change occurs within your life. If you get a raise, or acquire a large debt, the policy will need adjusted according. For instance, if you move into a more expensive house, or trade your old car in for a newer model, you may need a larger policy.

If you do not understand a section of the contract, or if you see something that you do not like, you need to step up and ask questions, or step out and get a different policy. Income protection insurance is not the type of policy that you can get at the time of an accident or illness. The policy will need to be set in place, and the waiting period must be over before you could expect any type of coverage to occur. Click here for more information.

Work accidents last year hit 2.7 million people last year, according to the United States Bureau of Labor Statistics. They happen every day, in every occupation. The only true way to be safe is to have an insurance portfolio that includes a policy that replaces your income if it should be lost due to circumstances beyond your control.


It is important to understand that there are two types of income protection policies. One, called the indemnity policy, will pay you a set percentage amount of your income if a claim is filed. The other type, which is often used is, the agreed value policy. This will pay out a specific amount that was agreed upon when getting the insurance plan. If your workdays vary, and your monthly income fluctuates, having a set amount would be a good idea so that you will know the exact amount of compensation that you would get.

Being pro-active when it comes to this type of policy is important to ensure that any illnesses or accidents are covered. This means to think, and plan, ahead. Do not wait until you need it to apply for it because it will not benefit you in the least. It is like the old adage goes “It is better to have it and not need it then to not have it and need it.”