Income Protection Insurance (IPI) is a special insurance cover, mostly available in the UK, Canada, Australia, Ireland, and New Zealand, covering policyholders who become unable to work because of an injury or sickness caused by another person. Previously called Permanent Health Insurance, IPI insurances were previously known as Universal Life Insurance.
The concept of income protection insurance originated in Australia, where the workers’ compensation system was initially designed. The concept has been adopted widely by many other countries, with the basic premise being that while an individual may be legally entitled to compensation, he would not be able to claim for it if he became injured or ill due to the fault of another person. The main goal behind the idea is to enable individuals to obtain appropriate health care in the event of an accident without having to undergo medical expenses.
There are two types of income protection insurance policies, called ‘permanent’conditional’. Permanent policies cover all losses arising from sickness or injury, regardless of whether or not the policyholder has the resources required to take care of his medical needs. An ‘annual renewable premium’ type of income protection insurance also exists in the UK but is usually less effective than a permanent policy due to the fact that it only provides cover for a year at a time, whereas a permanent policy lasts up to a full five years.
‘conditional income protection insurance policies’, on the other hand, do not provide any monetary support in the event of the policyholder becoming ill, injured or unable to work because of an illness. This is because the policyholder is not legally allowed to make claims for the lost wages, benefits and income he would have earned during his absence, unless he was legally declared fit to work by a doctor. Although this type of policy would certainly be a good choice for many people, it is not as financially sound as the permanent ones.
The benefits offered by income protection insurance can vary greatly, depending on the type of policy you are interested in. However, there are some policies that would cover everything from the costs of surgery or hospitalization, to dental and optical treatments, to legal fees or court fees, to travel expenses during the temporary relocation.
Income protection insurance can also provide financial help during the process of divorce proceedings. In order to get a divorce, one of the spouses must show that he or she cannot continue to support themselves. by working and earning money, in order to make ends meet their basic needs. If the other spouse proves unable to cope, then they will need to declare bankruptcy and ask for the payment of their maintenance expenses to a third party.
Some forms of income protection insurance cover the cost of education for children of those who become disabled during their lifetime. In the case of a disability caused by accident or sickness, an insured policyholder is guaranteed a certain level of financial support, depending on the type of coverage selected, while a permanent policy would cover up to a specific amount in the event of a premature death of the policyholder.
While a permanent income protection insurance can save people thousands of pounds if they are disabled or die prematurely, some types of income protection insurance may not pay out in these cases. For example, there may be a waiting period before the money paid to a beneficiary is available if a policyholder dies while still covered under the cover, especially if the policyholder had purchased a term life insurance.