Life insurance and income protection: everything you need to know
Life insurance and income protection are two separate ways to safeguard your family from financial distress if you’re no longer around to provide for them yourself. But what exactly is life insurance and income protection, and how do they differ? In this guide, we’ll talk about the basics of these two types of policies as well as how they complement one another—and why they’re both so important!
What Is Life Insurance
Life insurance is a form of coverage that helps protect your loved ones financially in the event of an unforeseen event, such as your death. Life insurance pays out a sum of money—the face amount—to someone designated by the policyholder (the insured) once certain requirements have been met. Life insurance can also help provide for your children’s future needs should you die unexpectedly, or for medical expenses if illness becomes an issue. Income protection is designed to insure against loss of regular income due to injury or sickness. Both life and income protections plans provide benefits that replace monthly earnings should you not be able to work because of illness or injury.
What Is Income Protection
Income Protection is a form of life insurance designed to help people when they're temporarily not able to work. Income Protection works by providing the policyholder with a monthly payout which varies depending on the premium amount, for example $4,000 per month for an annual premium of $49,240. There are actually two kinds of Income Protection policies: standalone Income Protection plans or combined Life Insurance with Income Protection plans. Standalone plans provide payments that are higher than combined plans but the policy has less coverage so if something happens that causes you grief it could be difficult getting compensated fully in comparison with a combined plan.
Understanding How Income Protection Works
You have taken the first step by educating yourself about the importance of life insurance and income protection. The next step is looking into policies from reputable companies that can offer coverage for your needs. It’s important to speak with an agent who can answer any questions you have about life insurance and income protection, because different plans work differently. A helpful way of understanding how this type of policy works is taking a look at the most common type: whole-life policies. With a whole-life policy, premiums stay level for the duration of coverage until it expires or reaches its maximum benefit; however, it can be converted into an accumulation phase or cash value if needed. Your kids might also need access to benefits while they are too young to hold employment.
The Different Types of Income Protection
There are two different types of income protection plans that are most common. Term life insurance is a temporary solution that provides financial security for a set amount of time. Whole life is actually an investment policy that really offers lifelong coverage. Income protection, on the other hand, provides short-term relief if an employee can't work for an extended period because of illness or injury. There are many reasons why individuals might be interested in some type of income assurance program like term life or whole life, but it's important to weigh the potential risks before deciding what plan is best for their individual needs.
Where Can I Get Income Protection?
Now that you're working with a good agent, be sure to ask them where they suggest getting your life insurance from. This is because not all types of policies are the same. Different policies cover different things, cost different amounts, and have different levels of risk. Income protection should be your top priority when it comes to your finances as it can help protect against a loss of work income due to injury or illness, but most importantly will help protect your family in the event that this does happen. With so many options out there when it comes time for picking which type of life coverage is best for you, who do you trust?
How Much Does it Cost?
Life insurance is a type of coverage that can help replace your income, pay for a funeral, cover the mortgage on your home, or provide money for dependent children if something were to happen to you. Every situation is different so it’s important that you find out how much life insurance would be best for you and compare rates with various companies. Income protection helps replace lost earnings in case something unexpected happens such as illness or injury. A lot of times these policies are combined with life insurance but it’s also an option if not
What Are the Payment Options?
Every policy is different, but most policies offer a choice between monthly or annual payments. Life insurance premiums are usually higher with monthly payments because that is the only way the insurer can guarantee you'll continue paying.Most life insurance companies also offer both term (temporary) and whole life (permanent) policies. Term plans don't last as long as whole life, but they are generally cheaper in the long run. You can choose how many years your term plan should last, anywhere from 10-35 years. Whole life plans typically come with some level of guaranteed interest rates, so if your interest rate goes up one day, it will still be at a fixed amount at the end of your contract's term.
When Should I Buy Income Protection?
It can be tough to decide when the time is right for life insurance and income protection, but making sure that these two important products are part of your overall financial plan is a smart idea. Life insurance covers the cost of final expenses, while income protection typically provides a monthly paycheck if you're unable to work due to illness or injury. Ideally, we want both types of coverage in place before we need them so that our families don't suffer financially if something unexpected happens. Income coverage typically starts when your kids head off to college, as well as retirement age, because then it's less likely that anyone will be around to provide supplemental income.
When Do I Need To Renew My Policy?
Life insurance is a type of risk management that provides a financial safety net for your loved ones in the event of your death. If a life insurance policy is in place, it pays out benefits directly to the beneficiary you’ve designated if anything were to happen. A term policy lasts until its predetermined end date, while a whole life policy lasts your entire lifetime. The main difference between these two types is how they are financed- term policies are paid off over time, while whole life policies are funded with one lump sum premium up front. Another big difference is cost; term premiums tend to be more affordable than whole life premiums because there's less risk involved with them.
