When an injury or serious illness prevents an individual from working, an insurance policy is available to fill the gap. The mortgage, vehicle payments and other essential living expenses do not cease simply because someone is unable to work. A short or long-term illness can cause a major financial setback without the assistance of an income protection insurance (IPI) policy.
How Does IPI Replace a Loss in Income?
Typically, IPI provides income replacement for an individual who cannot work due to a disability or illness. Most policies will provide financial assistance for mortgage payments, credit cards and other types of loans.
An individual can choose the required amount; however, most policies place a cap on the percentage of regular earnings. For example, if an individual makes $100,000 per year and has a 60 percent cap, the policy only pays $60,000. While this is less than regular earnings, it is more than zero.
Selecting the Best IPI Policy
Definitions of different IPI policies play a major factor in what is covered. Making the best selection depends on the definition as well as what an individual needs. Most policies cover one of three categories: inability to perform regular work; inability to perform similar work; and, inability to perform any type of work.
The most expensive policies cover regular work. Some forms of sickness may receive coverage for a partial payment if an individual can work part-time.
What IPI Does Not Cover
Having IPI is helpful and typically covers most injuries or illnesses. However, like with most things, there are a few exceptions.
If the insured person is receiving payment from his or her employer during recovery, no IPI payments are made. Most insurers consider pre-existing conditions an increased risk. Therefore, a pre-existing condition normally prevents payment to individuals.
Lifestyle choices may also prevent an individual from receiving IPI payments. Participating in dangerous sports such as sky diving, which could result in a serious injury, is a reason for exclusion. Anyone who does participate in sports considered dangerous must disclose this information prior to receiving a policy agreement.
Other exceptions may also include alcohol and/or drug abuse; pregnancy and childbirth; and, injuries determined to be self-inflicted.