Life is uncertain for all but it doesn’t stop us from making plans for the future. We set morning alarms, book tickets for future vacations and save money for rainy days. But are our savings enough for us and our families to tide over choppy waters? There comes a point in our lives when we begin to wonder what our loved ones will do when we are gone. One thing is for sure, we don’t want them to be struggling with monetary woes when we are not around for them or if we are made redundant due to an accident or permanent illness.
Income Protection Plans (IPPs) were developed with the idea of helping people make good their financial losses due to loss of income. Incase the primary earning member of the family meets with an accident and has a total permanent disability then he or she stands a chance of losing their job. In the absence of income, the family can be pushed under financial stress and find it difficult to keep up with monthly payments. As the breadwinner for your family, you surely don’t want to see your family battle it out. You want to provide the best for them and ensure that they are able to sustain and maintain that same standard of living even after you are unable to provide for them.
How do IPPs work?
An income protection plan acts as a shield for your family against crashing into a financial pit. You have to declare your monthly income excluding annual bonus. Based on a multitude of parameters and your gross monthly salary, your premium is calculated. You pay premium annually on the policy like for any other insurance plan. Incase of your unfortunate demise, the policy stands in to pay your family an amount which is commensurate with your income.
A standard policy covers that. But death is not the only way by which your family will lose on your income. You could meet with an accident or be diagnosed with terminal illness which could make you redundant and disable you from going to work. To help you shield from these factors, you can opt for accidental and disability riders. Although this will tug up your premium out go but it will provide with a wider coverage and greater peace of mind.
Some policies offer a lump sum amount at the time of death and a monthly payment upto a specific number of years, like 20 years, after your death. Not only this, the insurance policy also takes into consideration the rising cost of living due to inflation and adds additional escalation in the annual income every year. For example, Kotak Life insurance will increase the income annually by 6% while Aegon Life yanks it up by 5%.
Also, if the premium paying term is for about 15 years while the life assured expires in the 7th year, then some companies even waive of the rest of the premiums for the entire tenure but continue policy benefits as is.
Are they different from term insurance policies?
Often people get confused between income protection plans and term insurance policies. But they provide different benefits.
Should I buy a term insurance plan or IPP?
Well, it mostly depends on what you expect from the policy. There are term plans that pay back premium if you survive the term of the policy or help you with medical bills if you should be diagnosed with a critical illness. Such benefits are not part of an IPP.
A lot of companies are not willing to look after their employees should they be left incapacitated after an accident or illness. At such a time, an IPP ensures that your loved ones do not feel the impact of a change in life as atleast the monetary aspect continues as is, in the form of monthly receipts.
So if you are the primary earning member of the family or if your family depends upon you for survival then you should invest in an IPP. You could consider investing in a term insurance plan alongside as an added benefit to your family.
Are there any tax benefits?
Yes! The insured can claim a tax deduction u/s 80C and deduction on benefits received under section 10 (10 D) of the Income Tax Act, 1961.
How can I invest in this plan?
Several life insurance companies in India, such as PNB Metlife, TATA AIG Insurance, Kotak Life Insurace, Aegon Life etc offer this plan. You can get online and go to their website or pay a visit to one of their branches and find out more about this plan from one of their insurance advisors. If you are given an option, you could even request for an agent of the company to visit you.
A Few Last Words
There is nothing in this world that can replace the presence of a loved one. Though money cannot fill that empty space but it can help deal with life’s challenges with ease. One of the easiest ways to cover loss of earnings is by investing in income protection plans. Instead of investing in a term plan alone, a better alternative for them could be a dedicated monthly payment just like a pension or a salary that will help them stay afloat financially and be carefree of mishandling of funds. The sum assured received can act as a lifeline for many.
As with all things financial, it is important to read the offer documents carefully before investing. And since there are a lot of different types of products you must take your time to shop around for the one that suits you the most.
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