Is Income Protection Insurance Worth It?


Last month on Money Bulldog we discussed the question ‘What is Income Protection Insurance?‘. Today we are following up on that article by asking another question, ‘Is income protection insurance worth it?’.

It is always a good idea to think carefully about your needs and financial situation before taking out any kind of insurance cover.

The idea of protecting yourself and your family with some form of insurance is excellent but obviously not every single type of cover is right for everyone. With this mind, we can first take a look at what income protection insurance is and then decide whether or not it is one of those types of insurance cover that are worth getting.

The Benefits

The biggest benefit to this type of insurance is obviously the fact that your finances won’t be overly affected by a long spell off work. This brings with it the kind of peace of mind that can really be useful. If you think about it, this is by far the biggest benefit of any type of insurance anyway. When it comes to your car insurance, your home insurance and any other type of policy you have, they are all useful for letting you sleep more easily at night. You know that if your car is stolen or written off, or your house suffers damage or is broken into then you will be able to claim for the damages. You will still feel upset about the incident but at least you will know that financially you are going to be well looked after. Income protection insurance does the same sort of job when it comes to the situation in which you are off work sick or injured. You will still feel rotten about being laid up in bed or in hospital but at least you won’t have too many additional money worries on top of this to make matters even worse.

Who Could Benefit from It?

If you were off work for a sustained period of time, how would it affect your lifestyle and ability to look after your family? If this situation could quickly lead you to a financial breaking point then it is a smart move to consider how to avoid it being such a problem. Income protection insurance is designed specifically to help people who are moved onto reduced earnings or who have no income at all due to sickness or an unfortunate accident. Unless you have a really big emergency fund or someone else in the family who earns enough money for you to live on in the event that you lose a large proportion of your income then an insurance policy like this is could almost certainly be a good idea. It is worth bearing in mind that any income you might receive from an income protection insurance policy could be taken into account account when applying for means tested government benefits. You also need to remember that income protection insurance will not cover 100% of your earnings, usually it covers around 50%.

The Cost Issue

As with all types of insurance, the cost of the premium has got to be reasonable for you to feel comfortable with the idea of taking it out. As with any financial decision we make in life it will be true that the circumstances of each person will differ greatly. It is important then to work out whether the monthly premium you will pay for income protection cover will be worth the peace of mind that comes from knowing that a lengthy spell off work wouldn’t be a financial disaster.

The exact premium you pay will depend upon your circumstances, how much you earn, the type of job you do and many other factors, so it makes perfect sense to have a chat with a financial advisor to see exactly what amount you would need to pay for this cover. Having looked at the previous points on the subject you should hopefully have an idea of roughly how much you would be willing to pay for this kind of insurance cover. If you know how important it is to you to have this backup and this peace of mind then you should be able to fairly quickly decide whether to accept a quote or not.

Have you ever got a quote for this insurance cover and worked out whether or not it was worth it in your circumstances?

5 Responses to Is Income Protection Insurance Worth It?

  1. moneystepper says:

    For income insurance, my thoughts are the same as all insurance – can I afford to live without it? In the long-run, insurance companies are always going to make a fortune as insurance premiums always exceed payouts in the long-term.

    Therefore, I personally self-insure with my investments and in the short-term, with access to interest free credit cards (over the course of 24-30 months if appropriate).

    If needed, my investments can be liquidated to cover this cost. I would much rather risk having to do this than see a proportionally higher amount leave my bank each month in insurance premiums.

  2. Kathy says:

    When we were working we had income protection/disability insurance that would kick in if the disability lasted longer than our company’s sick leave policy would provide. Never needed to use it, thankfully.

  3. Amos says:

    I think its worth having income protection. It worries so much if you had a leave-say after some illness and you are not sure if you will still have sine income.

  4. At the end of the day, you have to assess the need for the coverage and if you are willing to assume the risk. In other words, is the risk big enough to cause you to need to buy insurance.

    For most, we have insurance on our house and cars because we don’t have $20,000 or $150,000 laying around should our car or home get destroyed and we need a new one.

    When it comes to income protection, if you have a well funded emergency fund, then the need for insurance protection on your income is probably small. But if you don’t have an emergency fund, getting the insurance protection becomes something to consider.

  5. Allan says:

    Income protection is something I wouldn’t be without. Whilst it’s not something we like to think about, the possibility of having a serious accident or medical event and not being able to work again for years is scary.And it happens. And if it happened to most people, it’d wipe them out financially.

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