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How to Overcome Recession Using Income Protection Insurance

How to Overcome Recession Using Income Protection Insurance

Income Protection Insurance can be an efficient financial tool in times of economic crisis. This article will give you a clearer picture as to how helpful this insurance can really be, considering its advantages and disadvantages.
Foram Mehta
Protection Insurance can be an efficient way of dealing with economic crisis when you are unemployed. Protection insurance is also known as an 'Unemployment Insurance'. Companies are shutting down, people are getting laid off from their jobs, pay cuts are practiced, etc. How can one survive in such a scenario? It is said that the developed countries saving rates are not very high because of which they will not be able to pay-off their basic needs after a period of a few months without income. Many people have also taken loans and mortgages, how will they manage repaying them? Income protection seems to be a good option in such times.
Not a Substitute to the Government Aids
This section is going to help you understand how the aids granted by the government differs from the benefits that the Income Protection Insurance provides. The aid provided by the government will only help you get food on the table, but it certainly is not going to be lucrative. It will not provide you with enough funds to pay your bills, mortgage rates, etc. And, that is why you'll need the Income Protection Insurance Policy, as, an Income Protection Insurance will help you in times when you are losing your finances because of being unemployed due to an illness or injury. This insurance is anyway not a substitute for the government aids. In fact, it is a supplementary aid, as it will take care of those needs that the government aids won't.
Social Security Disability Income
This insurance policy also provides you with social security, in case one has become disabled. But the benefits are limited. As stated by the 'American Psychological Association Insurance Trust', "The Social Security Administration defines disability as the inability to engage in ANY substantial work activity (currently defined as a dollar amount currently set by law at no more than $500 a month) due to a medically determinable physical or mental impairment expected to last for at least 12 months or result in death."
One Size does not Fit All
Income protection insurance is a financial product that is meant to cater to the individual needs. Therefore, the benefits that one will get will be dependent on his income and how much he can invest in this insurance. Also the insurance company will cover those who they think are less prone to unemployment. You will need to read the policy brochures very carefully and analyze the benefits before choosing your insurer. After all they are here to make profit too!
Advantages
1. Income protection will cover you when you can't work due to illness or even injury.
2. Benefits this policy will reap will not change even if you rejoin work with a lesser salary or lower position.
3. It not only covers employees, but it also covers self employed people and Business firms.
4. The benefits are 'tax free' as of now.
5. An insurance company cannot stop being an insurer to an individual as long as he is paying his premiums.
6. If you have not claimed your Income Protection Insurance in a particular period then, there are added benefits that can be given to you; like - your premium can be waived off.
7. The period of contract is for at least 6 years after which the policyholder gets to cancel his policy if he wishes, and in this case all the premiums paid by the policy holder are to be refunded to him.
Limitations
1. The insurance company will not insure the policy holder if he is unemployed because reasons other than illness and accident.
2. If a person switches to a different job, this policy might then not be considered as valid.
3. If the policy holder was injured or was ill under the influence of drugs, alcohol, and criminal acts, then the policy will not cover him.
4. The premiums will shoot up for the next period if you have claimed your income protection insurance.
5. Policies are generally very expensive considering the risk they are taking and also because of the guaranteed benefits they offer.
How Will it Help You Deal With Recession?
It will help you deal with recession by covering your daily expenses, for days you couldn't work. What will really happen is that you will be freed from the constant worry of how you and your family will manage having the same lifestyle even when you are not earning. This policy will help you manage your finances in the stage when you are trying to cope up and figure new ways out and start again.
You Need to Act Fast
Your insurer will not cover you if you are bound to lose your job (depending on your and your employers past and current records). This is a flip-side to the story. In case if the insurance company feels or suspects that you will be losing your job in the near future, they will choose to not cover you. Therefore, if you want to avail this insurance, you will have to do it without wasting much time. As no one really knows what may come up in the future.
This is not certainly an insurance policy that will cover all your needs. You will still have to have an insurance for your health and death and also a Mortgage Protection Insurance may be needed to be fully equipped.
Try some permutations and combinations in your daily life and ask yourself, what position are you in. Analyze how much are you going to be benefited with this cover. If you think you could be in danger, get the Income Protection Insurance right now after consulting an Investment Finance Adviser.