Income Protection Insurance: Different Policies

Article published on 11th July 2008

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Continuing on from our last article, here are three more types of Income Protection Insurance policy you should keep an eye out for while searching for the policy that is correct for you.

Increasing IPI's

The intrinsic value of the benefits provided by a fixed Income Protection Insurance policy degrades as time passes and inflation rises - so a specific amount of money might have a certain amount of 'buying power' now, but in a few years the same amount of money might be a bit less due to rising costs caused by inflation.

It is generally worth looking for a policy that has benefits that increase over the years, at least in line with inflation. Benefits such as these may go up at an indexed rate linked to retail prices (as one possible example), or by a percentage decided and fixed by the insurance company or even by a percentage decided by the policyholder every few years and in advance of signing any contract.

Bear in mind that although this sort of policy is generally advisable, premiums usually increase alongside the increase in the potential benefits paid out by the policy.

Unit-linked IPI's

Where most Income Protection Insurance policies have no investment element to them - so you cannot 'cash them in' at some point for a return of the money you spent on their premiums - a unit-linked Income Protection Insurance policy DOES have an investment element similar in its own way to life unit linked insurance policies. So you CAN surrender these policies at some point (usually if you haven't claimed on them, but not always) for a return of funds.

However, because of the investment element, premiums for these sorts of policies will invariably be more expensive than for standard policies and could still work out to be a poor investment if the comeback on a surrendered policy is less than the amount invested through the premium payments. Be sure to check the details of this sort of policy thoroughly before signing up - something you should do with any and all insurance policies for that matter.

Group IPI's

Some employers provide Group Income Protection Insurance policies for the employees of their companies. This sort of policy there tends to be a fixed length of time for payout periods (so you can rarely stay out of work indefinitely while still claiming the benefits of this sort of policy), and of course the policy is terminated if you no longer work for the company.

It is important to check whether you have this sort of cover already available to you before you go looking for additional insurance.

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