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Income Protection Insurance (IPI)
IPI policies provide cover up to an age chosen by the client, usually 55, 60 or 65 in order to coincide with their anticipated retirement date. To provide an incentive to return to work, cover is limited to, say, 50%- 60% of the current level of income, payable on a tax-free basis. The claimant has to be absent from work for a certain period before benefit is payable. This is called the deferred period and can be 4, 8,13, 26, 52 or 104 weeks (options vary among insurers). The proposer chooses the period best suited to their personal circumstances and, if employed, would normally choose a period which coincides with the period for which the employer is willing to continue salary. Obviously, the longer the period, the less expensive the premium. In the event of a claim, the benefit will be payable until the claimant returns to work, retires or dies.
The policy defines the degree of disability required before the benefits become payable.
As long as the insured keeps paying premiums and complies with any relevant policy conditions, the insurer cannot cancel the policy or increase the premiums, no matter how many claims are made.
It therefore provides valuable cover for clients and need not be expensive, certainly if the deferred period is of a reasonable length; for example - six months.
CIC and IPI are wrongly seen by some as being alternatives to one other. This is not the case as they provide different benefits in different circumstances:
- CIC provides a lump sum on diagnosis of a specified illness;
- IPI provides an income on being unable to work through disability.
They are therefore complementary and together represent a comprehensive solution to any client's financial needs in the event of a serious and lingering illness. If the client contracts one of the specified illnesses in the CIC policy, a lump-sum is paid off; if the client is unable to work through sickness or disability, enough income is provided to meet their expenditure, including mortgage payments. Depending on the circumstances, of course, a client may be able to claim under both policies.
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