What is income protection and do you need it?

Ever wondered what would happen if you got really sick and unable to work for a few months or even years? Would you be able to sustain your lifestyle having your source of income cut short?

This is something a lot of us worry about. But you don’t have to especially now that there exists solutions to counter such situations beforehand.

One of the best ways to cover for a loss of earnings caused by illness is to take out an income protection insurance. This insurance type provides you with a regular tax-free financial cover if an illness or a bad accident strikes thereby hindering you from working normally.

How income protection works

The general premise of income protection is to provide financial security usually based on a predetermined percentage of your income. Should you fall ill or get injured to the extent you cannot work normally, your provider pays out a part of your income after a specified waiting time elapses.

This waiting period can range from anywhere between 1-12 months – the longer it is, the cheaper you’ll pay for the policy. Once it’s over, the provider starts sending regular financial assistance until you’re back to work, retire, pass away or the cover expires.

What’s covered by an income protection policy?

Most income protection covers encompass nearly all the common illnesses, sometimes even a wider range than those covered by regular health insurances. However, some insurers do not accept existing medical conditions, meaning you will need to check your family’s medical history before purchasing this policy.

In a nutshell, you qualify for income protection if:

  • You cannot work due to involvement in an accident or an illness
  • Your capacity to work is significantly affected due to an accident or illness
  • You’re incapacitated permanently

Even so, you won’t be able to make a claim on your income protection policy if disabled due to the following:

  • Mental illness
  • Use of intoxicating drugs
  • Failed suicide
  • Normal issues brought about by the birth process including miscarriages and pregnancy termination
  • Participation in a civil unrest or criminal activities

Why take out this cover?

There are two main types of income protection policies – short and long-term. The latter pays out until you’re fully recovered or retired. Short-term policies only offer financial cover for a specified duration.

  • Not sure if this cover is right for you or not? Here are a few reasons to consider it:
  • Payouts are tax-free
  • It covers quite a wide range of health issues and incapacity
  • If the policy is valid, the insurer pays out as much as is needed to sustain you
  • You can use your policy’s payouts to cover your living costs, hospital bills, mortgage and debts

Claiming your income protection policy

For starters, it’s worth mentioning that you can make as many claims as needed as long as your cover is still valid. Before that though, your provider must fully assess you based on a medical report from a trustworthy source. This informs them whether you’re eligible for coverage or not.

If your injury or medical condition directly inhibits you from working, you automatically becomes eligible for income protection. Most providers will ask you to furnish them with essential information such as a medical report, proof of current income and your policy number. After reviewing and accepting your claim, you will start receiving an agreed percentage of your income for the duration you’re covered or until you go back to work.

Three factors affecting the cost of income protection

How much you pay for your policy depends on multiple factors including age, waiting duration and occupation.


The younger you are when taking out this cover, the lower your premiums will be.


There is no denying that every occupation comes with its fair share of risks. As such, insurance providers usually assess each case individually while taking into consideration the likelihood of risks occurring. This informs them the overall cost of purchasing the cover.

Waiting period

The rule of thumb here is the longer the waiting period, the lower the cost of premiums.

Is income protection worth getting?

Absolutely! Not many individuals or families can sustain their lifestyle once their income is taken away from them abruptly. The fact that illnesses and accidents never give notice makes it wise to seek financial protection early should a disaster strike. And what a better way to prepare for such eventualities than by taking out an income protection policy today?

Annika Bansal

Annika "The Chick Geek" is the founder of AnnikaBansal.com. Small Business Sense shares small business ideas, tips and resources for independent Entrepreneurs and Small Business owners.