The three risks in life are living too long (i.e. running out of money), dying too soon or becoming disabled. I wish to focus on becoming disabled. One can either self-insure for this, which most people are not in a position to do or offset it by taking out disability insurance. Disability insurance includes income protection, trauma and total and permanently disability cover. All of these have their place, although in my view income protection would be my priority as a customer.
The main reason for this is that income protection will replace your income as long as you are disabled and unable to work up to age 65 or 70. In addition, income protection is guaranteed renewable so once accepted by the insurer cannot be cancelled. Finally, income protection can be claimed on multi times whereas trauma cover can at best be only claimed twice. When I ask people what is their greatest asset, the answer is invariably their house. In fact your greatest asset is the ability to earn income.
Income protection provides peace of mind while you are getting yourself to a financial position where you have sufficient investment income to meet your needs. For the majority of people that will only be in their 60’s or 70’s. While income protection premiums can become quite expensive as one gets older, the benefit can be reduced as one’s asset position grows and debts are paid off or reduced. This will keep the premiums down, which are tax deductible under an indemnity policy. (Linked to your actual taxable income).
Hopefully you will never need to claim on your income protection cover, however the peace of mind it provides in my view is priceless.