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Is Income Protection Insurance Worth The Cost?

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December 13, 2021

Is Income Protection Insurance Worth The Cost?

Are you ready for the question of the day? Is income protection insurance worth the cost? The answer is a resounding yes. This holds particularly true for people who would like to be proactive about guarding against the fact that you may very well end up incapable of working at some point in the near or distant future. Although you may be young and or fit and healthy at the present time, you just never know if or when you will miss work for an extended period due to an illness, accident, or other unfortunate life event.

The vast majority of people would struggle greatly to keep up with their expenses such as the mortgage or rent, automobile payments, and even utilities if they lost their income due to an illness or accident. Although it may seem like a waste of money at first, an income protection insurance policy, which is otherwise referred to as sickness insurance or disability insurance, is a long-term insurance policy. In essence, it ensures that you will receive a regular income until the time that you are able to return to work or you retire.

So, how does income protection insurance work? First and foremost, the policy provides you with regular payments that replace a significant portion of your income if you are unable to work due to an illness or accident. The income protection insurance pays out until the point where you can start working again, retire, pass away, or reach the end of the policy term. You may not be able to work for months on end or even for multiple years. In fact, the average person misses work for three (3) years due to a serious illness or major injury.

That's certainly a long time to go without an income. On average, the income protection insurance policy will pay you anywhere from 50% to 70% of your gross income. It also covers the vast majority of illnesses that leave people unable to work in either the short term or long term. In addition, you can claim as many times as you need to until the policy ends. It should also be noted that there is usually a deferment period prior to the start of the payments. For example, you may need to wait 4 weeks, 13 weeks, or even 26 weeks or longer in order to start receiving payments.

However, you determine the waiting period when choosing your policy terms. The longer you wait for payments the lower the monthly premiums will be. Insurance happens to be one of those products that you keep paying for month after month and year after year with the hope that you never actually need to use it. The insurance companies hope that you never need to use it as well. They would much rather continue to collect your money month after month and year after year without having to make any payouts.

In fact, if you never make an insurance claim in your entire lifetime than you are the definition of a perfect customer. It's due to customers like that as to why the insurance companies can continue to afford to own the tallest buildings in cities across the country. However, the vast majority of people end up making a claim at some point or another. Even if you feel like you're paying more for insurance than you are receiving in return it's there for the what ifs in life.

For example, what if you are the cause of an automobile accident? You need an automobile insurance policy to cover the damages to people and property. What if you own a business and an employee is hurt on the job or a third party is injured when visiting your place of business? You need a business insurance policy in place in order to cover those damages as well. What if a tree falls and crashes into your house causing tens of thousands of dollars in damage? You need a homeowner's insurance policy in place so that you don't need to go out of pocket to pay for the repairs.

The same holds true with income protection insurance. Just like you carry insurance to protect your automobile, business, and home you can purchase insurance that protects your income. Most consumers have only heard of this type of insurance because of those Aflac commercials. However, only one (1) out of every nine (9) people actually have an income protection insurance policy in place. The bottom line is that if you become too sick or injured to work, income protection insurance can go a long way in helping to replace your paycheck.

Some people are under the false impression that their medical insurance will pay their bills when out of work. Medical insurance pays your doctors including hospital bills. However, income protection insurance pays you. In essence, it enhances your financial security. You don't have a crystal ball. You certainly cannot foresee into the future. That means you never know when or if you'll end up having an illness or accident that disables you to the point where you cannot work for an extended period of time. However, you can ensure that your income will be protected just in case you are ill or injured.

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About the author

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Mark Scribner

Managing Director, Boston

Mark F. Scribner is the Managing Director of oXYGen Financial, Boston Office. Mark grew up in Melrose, MA and now lives in Boston. He has an amazing wife Michelle, who supports all of his crazy endurance endeavors, including a solo attempt to swim the English Channel! Mark is the father of four children - Mark, Bella, Olivia and Emma. He loves being an assistant NFL photographer and cancer fundraiser, along with creating and running various companies.


The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Background and qualification information is available at FINRA's BrokerCheck website.

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