Income Protection Insurance
Income protection insurance protects your income. If you get sick or injured and are not able to work an income protection policy pays you a fixed amount of money per month to offset your income loss.
This payment allows you to continue to support you or your family. Without this protection you are at risk of losing your home and lowering your standard of living if you get sick or injured - it is valuable addition to your protection portfolio.
Financial Hardships
Financial Hardships are real. They are a fact of life for many people. The United States government tracks an income threshold which determines if a family is “in poverty”. If a family’s total money income is less than the applicable threshold, then that family and every individual in it are considered to be in poverty.
The number of people in poverty in 2019 was 34.0 million
How does this happen? There are many reasons and that is part of the problem. The data suggest that is not just one thing, or one segment of the population. It is understood that disadvantage populations and minorities are more likely to suffer financial hardships and hardships can affect anyone - cutting across the socioeconomic spectrum like a hot knife through butter.
Hardship Causes
There are many reasons you could experience a financial hardship or financial shock. A Pew report lists the following as the top contenders:
- A person in the household brought in less income than expected due to unemployment, a pay cut, or reduced hours.
- Someone in the household suffered an illness or injury requiring a trip to the hospital.
- Someone in the household divorced, separated, or was widowed from a spouse or partner.
- A car, truck, or SUV needed a major repair or replacement.
- The place you live or appliances needed major repair or replacement.”
"60 percent of households experienced a financial shock in the past 12 months"
The Hardship 5
The Hardship Five categorizes the common events that research has shown leads to financial shock or hardship. This summary is useful to discuss strategies and tools you can use to mitigate the impact of these events.
Unemployment / Unexpected Expense
The first of these hardships covers a broad category of events including unemployment, reduced work, a large vehicle or a large appliance expense. The only way to mitigate against these surprises is to have money saved or access to credit. Saving money is hard. How much? How long? And for most people it means forgoing immediate needs or wants. It is hard but it is the only strategy against these surprise events.
Sometimes access to credit is also difficult and it is not advised as a long term solution if you will incur a high interest rate/cost for using it. Credit can get out of hand quickly and cause more harm. A detailed money management plan is beyond the scope of this discussion but something you should get educated about. Here are a few resources that are good places to start to learn more about budgeting, finance and general savings.
Nerd Wallet is a general financial information site. Most of their information is for mass consumption but their "How To Manage Money" article is a good back to basics discussion on savings and budgeting.
Afford Anything is a website devoted to answering questions from real people about how to save and manage your money. There is a lot of content here and something for everyone.
Expensify started as an expense tracker but has grown to be a financial hub of services. They just launched a podcast with an interesting perspective on building wealth. Check it out below:
Unexpected Illness / Injury
The second hardship is illness and the third hardship is injury. The hardship with illness is a double whammy. First you have the prospect of not being able to work and therefore you have no income. Second are the medical bills.
As we have seen this past year illness can and does strike at anytime. There are also other illness such as cancer or heart attacks - events that we call "major illnesses" that can be genetic but also de-risked through healthy living.
Injury, the third hardship, can remove you from the workforce and rack up high medical bills - so it packs the double whammy as well. Injuries are not predictable - the most cautious can still be injured through the carelessness of others or by freak accidents.
A solution for these hardships is Income Protection. There are a few different income protection products and we will review them below in more detail, however, adding any income protection insurance solution to your protection portfolio is a great way to prevent these hardships from becoming financial disasters.
Below you will find a number of Income Protection solutions ranging from general Long-Term Income Protection to specific protection covering major illnesses like Cancer and Heart Attacks. Our agents can also customize a plan for you if you have special requirements or a special situation.
Income Protection Products
Long-Term and Major Illness Protection
Long-Term Income Protection is a general illness and injury protection insurance. As you would expect Long-Term means that this product is intended to cover you for illness and injury that has a long debilitating affect on your ability to work.
Major Illness is more focused on critical illness events such as getting cancer or having a heart attack. A major difference is that benefits, i.e. payments to you, start upon diagnosis of your illness or disease.
Long Term Protection
- Lump Sum Cash Payment
- Up to $20,000 a month in Benefits
- Real-time quote tool
Major Illness Insurance
- Fast and simple application
- The Express Issue benefit up to $50,000
- Real-time quote tool
High Limit and Custom Income Protection
High Limit Income Protection is designed for executives or those individuals that need more protection than a general plan covers. Typically doctors and lawyers are the main group in need of extra protection however the need really depends on your income and how much support you require in times of need.
Custom Income Protection is for special situations not covered by the other income protection products. This involves a consultation with a senior specialists who will listen to your needs and help design a program to address the protection you want.
High Limit Income Protection
- Guaranteed-Issue
- Up to $250,000 per month, per person
- Up to $10,000,000 Career Ending Benefit
Custom Income Protection
- Wide Range of Occupations
- Consultation with a Senior Specialist
- Custom Solutions
Income Protection FAQs and Terminology
To understand how Income Protection works it helps to understand the terms and some specifics you may encounter when evaluating an income protection insurance product. We list some terms and some common questions people have when learning about Income Protection. If you have more questions please contact us. We will happy to answer them.
But How Does Income Protection Work?
Income protection works in a similar way to life insurance in that you pay premiums on a monthly basis and if you experience an illness or injury that results in your inability to work then you get paid a monthly benefit to offset the loss of income.
Let's say you get sick and cannot work. You file a claim for your monthly benefit. Depending on the policy you purchased your monthly benefit will be paid after a period of time called the "elimination period". You can think of it as a waiting period. If after this period you are still not able to work because of your illness then your monthly payment begins.
How long does the monthly payment last?
In some policies the payment lasts as long as you are sick and cannot work. Other policies have a defined "benefit period" and some policies provide a lump sum/one-time payment.
Ok, what does income protection cost me?
The cost of an income protection plan depends on the type of plan. The amount that you want as a monthly benefit, the elimination/waiting period and the benefit periods all factor into the month cost. Other factors include your current health, occupation and age.
For example, if you want $2,600 a month in benefits and a 180 day elimination period with a benefit period of 5 years then an estimate of the monthly premium would be about $60.00*.
*Estimate depends on the state where you life, your age, income and whether you are a smoker
I have heard of disability insurance. Is income protection the same thing?
Income protection is another name for disability insurance but is more explicit in that when people think of disability they usually think of injury whereas disability can also mean illness. We call it income protection because that is its purpose: To protect your income.
Do I really need income protection if I have life insurance or sick days at work?
Yes. To mitigate the risk of financial hardship income protection is critical. As mentioned above life insurance is a solution for the survivors of your death. Sick days are usually limited to short-term illness. So yes, you need it.
What about FMLA?
FMLA stands for the Family and Medical Leave Act. FMLA is great if you qualify but it has a different purpose. FMLA is a federal labor law that guarantees eligible employees up to 12 weeks of unpaid, protected leave on family and medical grounds while enjoying group health benefits.
The relevant point here is “unpaid'' leave. While FMLA will help you retain your position and benefits the company provides it does not protect your income.
Why haven't I heard more about Income Protection?
Income protection has been around for years however it is not as well known as life insurance or retirement investments. This may be related to a stigma of the word "disability" or even a misunderstanding of how income protection will work. At My Protection Plus we aim to build awareness of this vital tool to protect your income and standard of living.
Is Income Protection for everyone?
While we believe income protection is a universal need, people with ample wealth may not need this protection as much as others. A few categories of individuals are more likely to need income protection. These are:
- Small business owners – a small business owner is often a single point of failure in a business success. Income protection to cover overhead, business loans and key employees is a smart decision to mitigate the risk of sickness or injury.
- Individual earners who have dependents/family members relying on their income on a monthly basis.
- Individual earners with debt payments that would need to be made if they were not able to work.
What is the difference between "Own Occupation" and "Any Occupation" income protection coverage?
Own occupation coverage is more specific and will provide benefit payments even if you can work in another occupation. Own occupation policies define your ability to perform substantial and material duties in your specific occupation. The definition of "disabled" is very important to understand when you are agreeing to these policies.
Any Occupation is different and broader in that you will only receive benefit payments if you cannot work in "any" occupation. You have to carefully read your policy and be sure you want either "own" or "any" occupation coverage.
What is a waiting period or elimination period in an Income Protection policy?
The waiting period or elimination period is the time period you must wait between when you get injured or become sick and unable to work and when your benefit payment start being paid to you.
What is the best waiting period for me?
A good way to estimate your desired waiting period is to calculate how long you can afford to be without your income – how long can you wait? Short Term Income protection has 30, 60, and 90 day waiting periods whereas Long Term Income Protection has 180, 365, and even 720 days. Typically the shorter the wait the more expensive the policy cost or premiums.
However, Income Protection is for you as well as to support others who depend on you. Income protection benefit payments can be paid monthly and lump sum payments depending on the policy. You are likely to get sick or injured many times during your lifetime and not to be flippant here but you only die once.
Does Income Protection provide coverage for any sickness or injury?
Each policy has a list of "exclusions" items that are not covered. It is very important you understand this list. In general the broader the coverage the higher the cost or premium of the policy.
Does income protection cover pre-existing conditions?
Each policy is different and has specific requirements and definitions of pre-existing conditions. Read these carefully. In general, a policy will not cover pre-existing conditions if you have received medical consultation, treatment, services or care or have been prescribed or are taking prescription medication or have symptoms would cause a "reasonably cautious person" to see a doctor for a diagnosis or treatment of a condition. tion.
If I have a pre-existing condition should I even apply for income protection?
Yes you should. While there is a chance you will not be covered there are many types of policies and unique situations which we do cover. The important point here is to be transparent with your policy agent.
Does income protection cover my family members?
Income protection is an individual coverage designed to protect your income and not any family members. You cannot use it to provide care for family members if they are sick or injured.
I already have sick leave as a benefit at work, why would I need income protection?
Sick leave is a great benefit that a lot of employers offer, it covers you if you are sick for about a week or two. But what after that? Income Protection is the answer. Income Protection
In addition, Income Protection can be used for virtually any medical reason – from and accident, a scheduled surgery, or even maternity leave. Make sure you ask about any pre-existing conditions when you are signing up to be sure you have the coverage you need.
Income Protection can be customized to provide short or long-term benefit payments. Short term is typically 3 – 6 months whereas long-term protection can be 1 year, 2 years or until age 65.
If I get injured or sick and file a claim do I need to keep paying my premiums on my policy?
Yes. Continue paying your premiums through your elimination period. You can stop paying your premiums when your claims are approved.
What is the difference between life insurance and income protection?
In a word, death. Not to be blunt but that is basically it. Life insurance is a lump sum payment to another person when you die.
However, Income Protection is for you as well as to support others who depend on you. Income protection benefit payments can be paid monthly and lump sum payments depending on the policy. You are likely to get sick or injured many times during your lifetime and not to be flippant here but you only die once.
Are the benefit payments of Income Protection taxable?
Since you pay for the cost of the policy with after tax dollars the benefit payments you receive are treated as tax free income.
Are income Protection premiums (the cost) tax deductible?
Yes and No. The tax deductibility will depend on your situation – for business owners certain income protection can be deducted as a business expense. Our product Business Overhead Protection (link) is such a product. However, we always recommend you talk with a tax professional if you have questions about your specific tax situation.
Retirement / Old Age
The fourth Hardship is retirement. Eventually, you are going to need to stop working and should want to. Whether voluntary or involuntary one things is certain - at that point you will no longer be able to collect a paycheck?
If you are not prepared for this loss in income you will experience hardships and need to reduce your lifestyle and perhaps even sell your house and many of your possessions and rely on state or federal assistance. Savings is part of the solution but long-term savings requires a different strategy and some of those strategies involve minimization of tax expense.
Some of these strategies involve owning stock and bonds. This does not involve speculation but prudent decisions. These strategies are beyond the scope of our discussion here but we are a big fan of what is called "robo" investing for the long term. Robo investing is fairly new and is basically an automated way to invest based on your personal situation and risk preferences.
There are a lot of financial advisors getting into this automated strategy and you are free to research your own. We particularly like Wealthfront and Betterment.
Betterment is a financial service that provides and easy way to get started investing for the long term. They have automated investing and personalized guidance that will help you become a well rounded investor.
Wealthfront, in their own words are on a mission to "help democratize access to sophisticated financial advice". They pioneered the automated investment practice and have a number of products to help you invest for the long-term.
End of Life / Death
The fifth hardship is death. Death is unpleasant to think of but necessary to plan for because this event causes the most hardship for the people that depend on you and care about you: Your family and friends. Life insurance is the obvious answer however, as with Income Protection there are a few options to choose from.
Our life insurance solution is one of the best and is offered by Sagicor - rated "Excellent" by A.M. Best Company. This rating is based on Sagicor’s financial position, the ability to meet its ongoing obligations, strategic management and operating effectiveness. It is one of the most affordable and versatile solutions on the market today.
Sagicor's Accelewriting program is a better way of securing life insurance for example qualified applicants can obtain the life insurance coverage they need without a medical exam*.
It is better to have a little life insurance than none. You are not locked into a contract and can cancel at any time or change your policy - finally policies providing hundreds of thousands in benefits can cost less than $20.00 a month - which is cheap compared to the alternative. Don't take our word for it. Get a quote yourself. Get Your Quote