What’s Good & What’s Not Concerning IP Cover
There are singular benefits Income Protection Insurance offers in relation to accident insurance, personal accident and sickness insurance (PAS) and general sickness and unemployment insurance.
Benefit 1: The payouts are made as soon as the policy holder is found to be incapacitated. The payout become payable once the deferred period has passed. Payouts continue until death, retirement, end of contract term or conclusion of sickness (recovery).
Benefit 2: As long as the policyholder pays their premiums the insurer can’t deny renewing the policy nor can they cancel it.
Benefit 3: The cover/policy/premium benefits are paid out on a regular basis. This can be either weekly or monthly, depending on the cover chosen, and is free of tax.
Benefit 4: Using an option called ‘waiver of premium’ it’s possible for the Income Protection premiums not to be paid, based on certain conditions, while the benefits continue to be provided as long as the cover goes under the policy contract.
On the opposite side of the scale…
Disadvantage 1: As is common knowledge with most insurance policies, even IP will provide no benefits for injuries or illnesses caused by criminal acts, self harm, alcohol and/or drug abuse etc.
Disadvantage 2: If the adult working policy holder becomes redundant for reasons other than illness or injury the policy will not provide payouts.
Disadvantage 3: Once occupations change for the policy holder so does the IP policy itself. A new one has to be made to cover the new risk based on the new occupation.
Disadvantage 4: Some IP policy holders will see much longer deferred periods which touch four weeks, sometimes more than fifty weeks. The premiums get lower as the deferred period gets longer.
Disadvantage 5: There is such a thing as moral hazard where the inconvenienced policy holder may not return to work if the benefits from the policy exceed that of his income. Therefore the maximum regular payment (payout) is restricted accordingly.
Income Protection Blog 