Why Buy Income Protection Insurance | Critical Illness Insurance

 

Hey guys in today’s we’re going to talk about income protection in financial planning, and how you can use it to your advantage. Now before we dive deep into it let's try to understand what income protection is. In the financial planning world.

 Income protection ensures one of the most important assets your income. It pays your benefit which is usually a lump sum of cash. If you are unable to work for a period of time because of an illness or an injury.

do you know that many people have health insurance. But not income protection. why do you even need income protection? With a case study of an atypical person without income protection.

we have to peter a 50year old sole breadwinner of a family with a wife and two lovely kids. Like most families, peter has a property on the mortgage. Twenty thousand dollars in cash set aside. And at the same time, he owes some creditors a debt of twenty thousand dollars.

If one day peter was to fall sick and is unable to work. Firstly his 20 000 cash set aside might be taken away by his creditor. He might not have sufficient savings to pay off the daily expenses.

 Secondly, he might be asked to leave his full-time work because right now he is unable to perform his job duties. He will end up feeling super stressed. Because of all his financial liabilities and obligations that await him.

 Thirdly because he is the only working person in the family. His property on a mortgage might be taken away as well. This leaves his wife and two kids with no shelter and no money to survive on. his kids might also be in college and might be deprived of the needed funds for education.

 But the wait can all these problems actually be avoided. If and only if peter had income protection. Now let's look at what happens if peter did have income protection. is commitment will be set aside a portion of his monthly income and give as a premium to XYZ insurance company. Upon peter falling sick and fulfilling some criteria set out under his income protection plans. XYZ company will provide peter a lump sum of money. which is called the benefits to him.

 Now, this lump sum of money can be used to pay off his mortgage loan pay off his bills and his family expenses. He can now rest and recover with peace of mind. Knowing that there's sufficient money to cover his financial obligations until he has fully recovered. His children also have the required money to go to college.

Now you see why income protection is important to every person when considering if you need income protection. Just ask yourself a few questions. If you fall sick today how are you going to pay for your expenses when you need it? Who is going to pay for your kid's education when you fall sick? Who is going to compensate for that loss of salary because you're unable to work when you fall sick?

 If you do not have a backup plan then income protection might be the best way to transfer those potential risks. We now understand the importance of having income protection.

 The next question you'll probably be asking is what insurance products provide income protection you need. The insurance product is called critical illness insurance. It is an insurance product in which the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the specific illnesses on a predetermined list as a part of an insurance policy.

 To help you understand better it might be a standalone product or sometimes it may be an add-on to an existing insurance product. Which people call an insurance rider?

That’s why when you hear some advisors mentioning critical illness insurance don't get confused they're effectively referring to income protection too.

So how much income protection do you need? The general rule of thumb is five times of your annual income. for example if you are earning a hundred thousand dollars annually you would require an average of about five hundred thousand worth of some assured on your income protection plans.

 However, this does not mean you need to purchase five times of annual income upfront. This means you can start your insurance plan no.  And slowly build your way to the required amount.

 Remember the best time to protect your income is today because you never know what will happen tomorrow. So start early if you are a client reading my article don't hesitate to have a conversation with your financial advisor on income protection.

Even if you think you already have all the insurance in place. Depending on when you last reviewed your financial portfolio and insurance needs. It might require some updating.

 If you’re a financial advisor do not forget to check my other articles which will help you in your journey to success. I hope you understand today's article on income protection.

 I did this because I know many people are still confused with the term income protection and I hope I can provide you more clarity. Remember life without insurance is gambling. It is an important product that has given many people peace of mind knowing that money would be available to protect your family.