Income Insurance is basically an insurance coverage, available primarily in Australia, Ireland, New Zealand, South Africa, and the United Kingdom, paying out benefits to policyholders when they are unable to earn a fixed income due to illness or injury and therefore unable to work. IPI plans were previously known as permanent health insurance. They are now a widely accepted term for insurance coverage that covers a wide range of different needs and risks. The type of income protection you are looking for is determined by the amount of your monthly income.
The two most common forms of income protection are Income Support and Benefit Payments. In a benefit payment plan, the insured pays into an insurance policy each month that can be accessed when need be. An example of an income-based benefit payment is a sickness benefit. A sickness benefit can be paid when an insured is unable to earn any income due to sickness or injury, or when they become totally disabled. Another example is a disability benefit, which is paid when an insured suffers a pre-existing medical condition that results in them becoming unable to earn a living.
Benefit payments, also known as income support, are paid throughout the duration of the Benefit Period. The Benefit Period is the period of time from the beginning of the benefit period, until the insured ceases to receive benefit income. The Benefit Period could start on 1st January of the year one year after the policy was started or it could start on the last day of the year that has elapsed. Benefit payments are paid to the insurer at the beginning of the benefit period and can then be withdrawn by the insurer at the end of the benefit period.
In Income Protection insurance there are two types of premiums paid. There are “closed” premiums and “open” premiums. Closed premiums are paid to the insurer at the time of the policy acquisition and include the cost of appraisal and record keeping. Open premiums are those paid when the policy is purchased and include the cost of record keeping and the cost of appraisal. Both types of premiums are based on an Assumed Liability Insurance Factor, otherwise known as ALCO.
In order to determine the level of benefit periods, the benefit period for a long-term income protection policy is usually set by the insurer at a level that is equal to the average lifetime earnings of the Insured. For a short-term policy this is often not sufficient as the insured may cease to earn sufficient income to meet the lifetime benefit amount. Therefore, an additional element is added to the long-term benefit period, namely the Accrual Property Estimator. The Accrual Property Estimator is a calculation that involves deducting depreciation from the current market value of the property used to make the capital gain; and finally, subtracting a specified amount from the lifetime income of the Insured.
Once the Insured has reached the maximum lifetime income rating for the policy they are carrying, they can request a special benefit to be paid during the waiting period after their death. Generally, this means that the Insured would then be entitled to a lump sum payment or a lifetime annuity. Premiums are usually based on a percentage of the excess death benefit or a flat premium rate. Once the Insured has passed away, the premiums would cease. If the Insured had not paid into the policy during the lifetime of the policy, the surviving members of the family will each receive one hundred percent of the remaining value of the policy, minus any premiums that have not been paid.
Another option available to protect against short-term disability is a short term disability insurance plan. Similar to COBRA, with one exception, there is a waiting period before COBRA must commence. The waiting period generally varies from six months to a year. The premiums are based on the same factors that are applied to COBRA, including premiums and the number of individuals covered by the policy.
Short term disability insurance covers the same health risks as COBRA does but does not provide the additional income that would be gained through COBRA for individuals already near the poverty level. Short term policies are also sometimes referred to as catastrophic policies. If an individual suffers an illness prior to attaining the age of sixty-five (the “plateaus”), their income may be garnished to pay part of their monthly income protection benefits. Some short term disability policies offer benefits retroactively to certain illnesses.