Income Protection Insurance

Income Protection Insurance or IPI is a form of insurance that pays benefits to the policyholders in case they are unable to work owing to any accident or illness. In such scenarios, the policy holder will get around 70% of his income as a monthly benefit for a prior agreed period of time. This policy is common in the United Kingdom, Australia, New Zealand and South Africa. In some parts of the world, it is addressed as Permanent Health Insurance (PHI). This policy is not to be confused with the insurance against unemployment as the policy holder will get the benefits only if he becomes incapacitated to work.

Expense and Taxation:

The IPI is generally expensive due to its guaranteed benefit to the policyholder. Most of these policies have their premiums decreasing as the policy period increases. To reduce the policy’s price, prefer to choose “any occupation” or “suited occupation” instead of “own occupation”.
Coming to the taxation benefits, the benefits given to the policyholder following any mishap are free of income tax. The premiums paid by the employers to cover their employees are counted towards tax benefits to the employees.

Types of IPI:

Generally, there are two types in the IPI based on how the benefits are given to the policyholder.

Indemnity Value IPI: In this form of income protection, soon as you apply for the benefits, you need to provide a proof of your pre-disability income which will be verified. If your income decreased from the sum which you used to get at the commencement of the policy, you will most likely get a less benefit monthly amount.

Agreed Value IPI: This form of IPI requires just the proof of the pre-application income based on which you will be paid the benefits. It does not need any financial information and pays upfront the amount that is agreed at the commencement of the policy. As it offers more flexibility, it is the costliest of the two types.

Apart from these, there are some other minor differences in different IPI policies in different countries. However, read the policy riders to know what it covers and what it does not. If you are looking to purchase income protection insurance NZ, some of the best organizations offering competent policies are Cigna, Tower, Westpac and AMP.