Loss of income insurance is worthy of consideration early in your career. This is because although you may survive an accident or illness, it is possible to lose your ability to earn. You can then become a burden on your family and friends if they have to support you financially.
However, loss of income insurance, even if available, tends to have slimmer likely benefits compared to the costs. So, most people opt for self-insurance and bear this risk. Yet, should such coverage be readily available at more attractive cost/benefit rates, it is highly recommended.
Loss of income insurance is the third insurance coverage considered essential for weighing the “take it or leave it” option. Then, if you are bearing this risk, with a better understanding you are doing so knowingly, not just avoiding a cost you do not understand.
Some events can interrupt the plans you have for your life and for your family. For instance, a vehicular accident could render you a quadriplegic for the rest of your life, limiting your ability to live life as you once knew it, particularly limiting your ability to earn a living. Alternately, a tropical storm may destroy your main source of livelihood. Is there insurance coverage available to protect you from such setbacks?
Income protection insurance provides such coverage. It provides a lump sum of cash in the event of disability, illness or injury that curtails your ability to earn a living, or when a catastrophe (or other event specified by the insurer) disrupts or interrupts your business from earning its normal profits. The cash provided is available to replace in part the income lost and, in the case of a health issue, to assist with medical care costs.
Loss of income insurance is different than the disability waiver you may have in your life insurance policy. That waiver just allows your policy to continue in force without the payment of premium during your period of disability (where your disability prevents you from earning the usual income). Since you are not earning during your disability, it is assumed that there may not be funds to pay the premiums.
Loss of income insurance goes beyond the waiver rider by providing cash to replace part of the loss of income. Usually when negotiating the purchase of the policy, the insurer will offer a percentage replacement of the normal income lost, say half (50 per cent), two-thirds (66.6 per cent) or up to 100 per cent. The higher the proportion of income loss covered, the higher will be the cost of the premium. Then, for sure, you would have to show proof of the level of income from your sources of income, your occupation or business.
For now, the cost of loss of income insurance for the individual earner tends to be relatively high. This makes this insurance a “leave it” choice unless that individual really foresees real benefits in his specific circumstances.
Yet, all is not lost. Some vehicle insurance, public liability insurance and employee liability insurance policies include provisions for loss of income benefits as a result of related accidents. These policies can have an element of replacement of income lost along with the usual reimbursement of medical and rehabilitation expenses.
Similarly, critical illness insurance policies may provide for a lump sum payment on the diagnosis of specified illnesses. This lump sum can provide for medical care as well as some element of loss of income after the diagnosis.
Next article will consider aspects of home insurance.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
