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Written by Georgina Laidlaw.
What would you do if, as soon as you finished reading this blog post, something happened that stopped you from working? How would you manage?
Recently, a friend of mine who runs his own business from home found himself faced with this very question. Out of the blue, he was hit by a medical emergency that stopped him from working. His partner didn't earn enough to pay their mortgage on her own, let alone support them both and pay his mounting medical bills. Things were looking grim, and the financial questions only added to the stress of an already extremely stressful and emotional situation.
This really made me think about what I would do if I had some kind of health issue that stopped me from earning. In many countries, if you become unemployed, you can register for benefits that ease the financial strain. But if you get sick or have some kind of accident, you can't claim unemployment.
The good news is that safety nets are available. Yes, I'm talking about insurance – income protection or IP insurance (known as disability insurance in the U.S.) — but don't hit the back button just yet. After seeing what happened to my freelancing friend with the medical emergency, I started asking my contacts if they had any IP cover, and most of them didn't even know what it was. I thought it might be worthwhile to talk about it here, at least so you can make an informed decision as to whether you want to look into it or not.
Most think IP insurance is for old people, or sick people, but if you:
- support yourself financially
- support others financially
- have a loan of some sort
…you might want to consider protecting your income. If you think it'll cost a lot, you'll be pleased to hear that it can be affordable — the insurance I have costs me less than a dollar a week.
How it Works
The idea of income protection insurance is that you receive a regular "benefit" (a payment) if you suffer an injury or illness that prevents you from working. Obviously the payout time frames, features, waiting periods and so on vary among IP insurance policies.
IP insurance doesn't cover you for redundancy, being fired, or if your employer goes broke. It's all about your personal physical and mental capacity to earn an income.
The Objections
There are plenty of knee-jerk objections to IP cover, but most of them don't really stack up…
"I'm too young for IP cover."
My friend was in his 30s when he suffered his medical emergency — fate doesn't discriminate when it comes to age. Another contact, who's in in her mid-20s, has been claiming on her IP insurance for the last few months as she's suffering from depression and can't work.
"That'd never happen to me…"
That's what my friend thought, but life is unpredictable.
"I'm fit and healthy so I don't need it."
Many insurers will give you a cheaper policy if you're healthy; once you start suffering some kind of condition, it can be more expensive, and much harder, to get cover for that condition. So it's best to set up the safety net when you're in the proverbial pink.
"I'm too busy to worry about that stuff."
If you have time to search the web for a new geeky gadget/vacation deal/DVD box set, you have time to review a few IP cover offers.
"I lead a boring life — it's not like I bungy jump or sky dive or something!"
Accidents are just one aspect of most IP policies — most also cover you for illness, including physical and mental conditions. My friends who got sick didn't do anything special. They were just unfortunate.
"I'd get sick leave from work, so I don't need extra insurance."
If you work in a paid role that includes sick leave, it's likely limited to a certain number of days each year. Income protection cover can last for anything from months to decades, depending on the type of cover you choose.
OK, so maybe you're entertaining the idea of looking into this IP cover thing. Here's a list of the "features" you might consider if you're looking for some good cover.
What should you look for?
Provider
A search engine might turn up a few IP cover providers in your country, but personal recommendations should carry more weight — ask colleagues or contacts you trust if they know of a good supplier. If you have some other kind of insurance already, that company may offer IP cover, as do many banks and financial institutions.
If you're tossing up between a few good providers, ask them for their claim acceptance rates — this will tell you what percentage of their customers who made IP claims were paid out, and might help you make a decision about which provider you'll choose.
Benefit duration
My cover lasts for the duration of my working life, so if I got sick and couldn't work from tomorrow on and remained that way for my entire life, I'd get a regular payment from my insurance company until I was 65. Some policies only cover you for two years — check out the duration, and the effect that increasing your coverage period will have on the insurance premiums.
Waiting period
If I get sick, I have to wait for three months until my insurance will start to pay out, but I can reduce this waiting time for a slightly higher premium. Make sure the waiting period you choose is manageable.
Benefit level
The "benefit" is how much money you'd receive if you made a claim on your IP insurance. It's important to make sure the payout would cover your everyday expenses, because if you get sick, you'll have not just these costs but potentially medical expenses as well.
Existing or new conditions
Some policies will only cover you for new conditions (not pre-existing conditions); others may charge you extra to provide cover for existing conditions. Make sure you know what you're covered for, and that you're happy with that cover.
Occupation definition
This is likely to be hidden in the fine print, but some policies won't cover you if you can still work in any occupation. So if I suffered some kind of injury that stopped me from holding down a job as writer, but I could still work as a kitchen hand, cleaner, taxi driver or some other paid capacity, the insurance wouldn't pay out my claim.
You might want to seek out a policy that covers you for your own occupation — in that case, if you're stopped from working in your current role by illness or injury, you're covered.
Cost
Of course, policy costs vary, so be sure to shop around. In my country, Australia,, income protection insurance comes as an option on superannuation (or pension) accounts, though few of my fellow workers realize it. I took this option, so I pay for my insurance out of my pension fund, not my weekly budget. This kind of setup may not be available where you are, but it might worth looking into.
So, what do you think? Do you think IP cover's a waste of money or worth looking into? Would you consider it? Or are you already covered?
