Can you get income protection insurance that lasts long-term?
Although Income Protection is designed for temporary relief it's still possible to get cover that lasts longer. Many policies offer cover for up to 5 years. Some even offer cover to the age of 65. In many cases, longer lasting cover is easier to get at a younger age.
What are the benefits of long-term Income Protection?
Income protection pays up to 75% of your regular income in the event of a severe illness or injury that would render you unfit to work. Some of the benefits of a long-term policy include:
- Ongoing income for an extended period of time. This ensures that you will still be able to pay any financial obligation you might have, like mortgages and medical expenses during long periods you are away from work. Depending on your policy, the period of cover could extend until the retirement age of 60-65 depending on the coverage you chose.
- Most of these policies are flexible. You could decide when you would like to receive the payments. The length of the waiting period could be between 90 days to 180 days. You could even choose which type of health care you can avail of. This flexibility gives you and your family the liberty to make necessary changes should the problem persist.
- Most of the policies offered are tax deductible. The benefits paid to you are deducted from your income.
- You could receive benefits of up to 75% of your total annual gross income. The benefits you receive are also linked to the Retails Price Index meaning that their value escalates as time goes by.
- Some long term income protection insurance offers additional benefits like temporary accident cover and retirement protection benefit. The temporary accident benefit pays you a certain amount within 90 days while waiting for the policy to kick in. On the other hand, the retirement protection benefit pays up to 10% of your base salary upon retirement.
- Most policies are guaranteed renewable. This means your cover can be renewed each year without you having to undergo additional medical underwriting.
Drawbacks of long term Income Protection Insurance
While long-term income protection insurance has many benefits for you and your family, there are a number of disadvantages that you will also need to be mindful of:
- A higher premium. Since the overall payout (if something happens) could be higher, you may also be subject to paying a monthly premium for a long time and still not being able to use it.
- The higher premiums may be unaffordable. You need to balance the features you want and need, with the coverage you can afford for the long term. There is no point in taking out fully featured insurance which will cover you for every possible eventuality if you can only afford the premiums for three months until your budget is stretched to breaking point.
- Strict application process. Applicants may need to go through a series of tests before the insurance provider decides whether you are qualified to have the policy or not. In case you are qualified, you could find yourself paying high premium based on the factors that surround you, like your job or the amount of exposure to certain risks.
- Long-term income protection differs from policy to policy. It might be a little perplexing when you are looking for the right policy for you. What is being presented to you upon enrollments can be different when the benefits start to pay out.
Are stepped or level premiums cheaper for the long term?
One important consideration when taking out income protection insurance is whether to have stepped or level premiums. Levelled premiums are generally more affordable in the long run.
- Stepped premiums: Start off low and increase over time.
- Level premiums: Will start off higher than stepped and increase gradually over time.
- Hybrid. A combination of both that starts off as a higher stepped premium that that changes into a levelled premium.