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HAPPY DISABILITY AWARENESS MONTH — An Introduction to Income Protection Insurance

October is Disability Awareness Month, a time to raise awareness of the vital contributions of Americans with disabilities.

Some people are born with disabilities; others become disabled later in life due to injury or illness.

For those whose disability comes later in life, it is a specter of both a physical and financial hardship. Disability may impede our ability to work — even bring our careers to a premature end and significantly undermine our financial means.

In honor of Disability Awareness Month, J&G Associates would like to take the opportunity to highlight one of the tools you can use to guard against the financial hardship that may arise from an unexpected disability — income protection insurance.

What Is Income Protection Insurance?

Income protection insurance is also known as long – term disability insurance. If you become disabled and unable to work due to an illness or injury, you can claim a regular income from the policy.

How Much Can I Claim From Income Protection Insurance?

An insurer will not write you a policy to claim more than your current income, or even your current income. Typically, an insurer will pay a claim of one-half to two-thirds of your current gross work income. This is not to penalize you, but because the benefits you receive are usually income tax free.

How Long Does it Take For Me to Get Paid?

Typically, you must wait until the elimination period is satisfied. Which is usually 30, 60 or 90 days, after the onset of the disability before you can make a claim against your long-term disability income insurance.

Is my Income Insurance Claim Taxable?

Most of the time, no. Income from claims against an income protection insurance policy are not taxable income.

Do I Need Income Protection Insurance?

The overwhelming answer is that most people should have long-term disability insurance.  Why?  Because you are protecting your most valuable asset, your ability to earn a living.  People insure other assets, such as cars, homes, art and jewelry.  All of which are important assets, but without an income, how would you and your family maintain your current lifestyle?

It is important to note that if you never become disabled and unable to work, you are not eligible for a refund of premiums paid. That money is just gone. Income insurance can tend to run on the expensive side, so you should carefully consider your alternatives.

Above all, check to see if you have some kind of illness or disability insurance included with the terms of your employment. Your mortgage may even include some sort of insurance against serious illness.

What Affects the Cost of Income Protection Insurance?

The cost of your income insurance premiums depend on a number of factors, including but not limited to:

  • Your age. Older consumers will usually face higher premiums due to the increased risk of disability.
  • Your general health. If you are in generally good health, you may be eligible for lower premiums.
  • Your job. If your job entails significant risk of illness or injury, your premiums are likely to be higher.
  • Your lifestyle and hobbies. If you smoke, and/or participate in extreme or dangerous hobbies, your premiums may be higher.
  • Your qualification for other work. If you are qualified for other work besides your current work — especially work that certain disabilities might not impede — you may enjoy lower income protection insurance premiums.

Are Any Conditions Excluded from Income Protection Insurance?

Pre-existing conditions may be excluded from eligibility for income protection insurance claims. Make sure to ask your insurer about any points of concern.

What Will I Have to Tell My Insurer to Get Approved for Income Protection Insurance?

You will be required to disclose a family medical history, any lifestyle behaviors that may increase your risk of disability (drinking, smoking, drug use, etc.) and any dangerous hobbies or work vocations (extreme sports, exposure to chemicals, etc.)

If your insurer discovers any of the above circumstances that you failed to disclose, they may decline your claim.

What Are The Alternatives to Income Protection Insurance?

In addition to benefits through your employer or the government, you might want to consider critical illness insurance as an alternative. Critical illness insurance pays you out a lump sum instead of a regular income if you suffer from certain illnesses, and it tends to be less expensive than income protection insurance.

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If you are concerned about your ability to support yourself, your loved ones, and your lifestyle in the event of disability, please reach out to J&G Associates today. We can help you decide if income protection insurance, critical illness insurance, or another solution is right for you.

 

This post is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this post may not be appropriate for your situation. All opinions expressed in this post are solely those of the author and do not necessarily reflect the opinions of Penn Mutual, its affiliates or employees. Always consult your legal or tax professionals for specific information regarding your individual situation.