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Income Protection Insurance

What it is, pros and cons

IPI or Insurance Protection Insurance is a type of policy available in the United Kingdom and Ireland in which a policy holder will be paid benefits if they are unable to work.  The policy holder must have some illness or accident, which keeps them from working in order for the income protection insurance to pay out.  It was once known as permanent health insurance, but this was changed a few years ago to be more specific in name as to how it works.

There are specific aspects of Income Protection Insurance, which will be discussed.  These features will help you determine the pros and cons of the insurance, and whether you desire to have it.  These aspects are benefit limits, deferred period, proportionate benefit, and free limit.  Benefit limits provide a certain amount of normal earnings to the injured or ill policy holder. Most often it is no more than 70 percent of the gross earnings for the policy holder.  A deferred period means the time a claim is made and the beginning of the payments.  A proportionate benefit is incorporated into the policies in order to encourage the policy holder to return to work.  In other words, when the policy holder is able to return to work the benefits become less from the income protection insurance.  The last aspect or feature is the free limit in which policy holders must be living in their permanent country of residence.

Pros of IPI include benefits which are paid out when a person is recovering from an accident or illness.  These benefits are paid free of tax either weekly or monthly.  The insurance company cannot refuse to renew the policy as long as the policy holder is paying the premiums.  Also, there is a waiver option in which the premiums might be waived during the time benefits are being paid out.  Basically, a person who is unable to work might not be able to pay their expenses such as the mortgage, grocery bills, utilities, etc.  The protection insurance makes it possible for them to make these payments while out of work without worry.

There are restrictions or cons to the income protection insurance.  The policy will not payout for any reason other than illness or accident.  The period of paid benefits is usually 4 weeks, though some companies offer up to 52 weeks.  A number of exclusions such as drinking or drug abuse can cancel the policy payout.  If a change of occupation occurs, even while premiums are being paid it can cause the policy to be defunct.

Overall, income protection insurance is meant to be a small help for individuals who are not getting their regular working income due to accident or illness.  The benefits last for a short period of time and there are quite a few restrictions.  The biggest con is paying the premiums, which can be an added expense most families cannot afford.  On the other hand, having a sure source of income in the event of illness or accident can make it worth it.

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