Income protection acts as a safety net for people who are unable to work or have a fluctuating income. It is a form of insurance that can be used to replace lost income.
It is highly dependent on the income you originally earn and the type of business you are in. We’ve made a brief overview that should help you understand what makes income protection suitable for many small business owners.
Losing a portion of your income can send your life into chaotic haywire if your small business has a tight budget; imagine trying to get by without your income’s support. If you happen to get in an unfortunate emergency that requires you to stop working for a while, income protection can be a true lifesaver. You don’t need to worry about how you’re going to cover your living expenses, allowing you more time and comfort to be able to deal with what you’re facing.
Choosing between Long and Short terms
If your debt is causing you a lot of problems, you can go for a short-term approach using income protection. The payout duration is notably reduced to help you settle your debts quickly. It’s important to really understand the reason it’s so important to have coverage.
Here’s how one website puts it: “Having income protection means you’ll have money to help pay your debts and living expenses during your recovery from serious illness or injuries.” You’ll be able to cover your debts along with taking care of any household expenses even if you are unwell. You may not be able to enjoy the constant income stream but you won’t have to worry about your debt or bills piling up.
If it’s more suitable for you to go the long way, the long-term payout period can go for as long as 5 years. This means that you can sustain your income safely even after you close or halt the business for 5 years. It’s perfect for entrepreneurs who like to take risks, helping them avoid putting their families in a dire state.
Considering the Problems of a Pre-existing Medical Condition
Similar to how many insurance providers operate, a pre-existing medical condition can make your payout considerably less with income protection. Since it can possibly cause you to take some time off from work, it’s taken into consideration when income protection is calculated. Group income protection policies may require medical underwriting to ensure that they are not taking on a lot of risks. The type of working environment that you’ll be in is also considered, for example, high-risk environments get lesser payout than safer ones.
Before the policy is in place, there is a waiting period for income protection that you may need to hold out for its duration before you’re able to take advantage of it. A lot of people choose to depend on sick pay until the waiting period is over to avoid running on fumes. The policy is set into place to avoid double-paying an employee if they are on sick pay.
Exclusions and Considerations
Income protection policies come in different varieties when it comes to exclusions. Not all providers offer the same benefits, especially when it comes to coverage of injuries in certain circumstances. There are some injuries that are covered even if they are not related to work as long as the activities weren’t on a restricted list. Naturally, most policies won’t provide coverage for injuries sustained during a war, illegal events, or acts of terrorism.
In an era marked by uncertainty due to rapid changes in the market’s landscape, caused by the COVID19, income protection is a very important topic to discuss. The uncertainty of small businesses was already at a high level, introducing disruptions in the current market can make it even worse. Considering income protection as a small business owner is a very important decision that you might want to make, sooner than later.