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What is Salary Protection Insurance and Why You Need It

Salary protection insurance plans can help your family have a monthly income even in your absence. Read on to learn about the benefits of salary protection insurance.

  • 13,646 Views | Updated on: Feb 28, 2024

If you want to secure your family’s future, then salary protection insurance is a great option to invest in. Opting for this plan is beneficial as it offers the choice of claiming benefits as regular income payout or lump sum payment in case of your unfortunate demise.

You work hard your entire life to ensure your loved ones get the best of everything. So why not help them with the same when you are not around with income protection insurance? Salary insurance, also known as an income protection plan, is a financial product that safeguards your family members in your absence.

What is Salary Protection Insurance?

Salary protection insurance, also known as income protection insurance, is a type of insurance policy designed to provide financial support to your family in the event of your absence. It aims to replace your regular income, ensuring your family can still meet their financial obligations and maintain their standard of living.

You can decide how to split the total sum assured amount between the two components (regular income and lump sum) while choosing such a term insurance policy. The term insurance policy with a regular income payment option is a good choice for those who have not experienced investors or want to pick lower but assured profits.

However, buyers must be aware that it is a term policy with no incentives for maturing. In the event of the policyholder’s passing, a lump sum insured death benefit is only paid to the nominee.

How Does Salary Protection Plan Work?

You must choose the monthly income your family will require before you purchase a salary or an income protection insurance plan. This is how such plans operate:

Determine Your Monthly Income

While purchasing the income protection policy, choose the monthly income you believe will be sufficient for your family in your absence. However, your chosen amount should be equal to or less than your current salary.

Select the Duration

Determine how long you want the policy to be effective. Keep in mind that the premium you will pay is based on the length of the policy. However, it is not the only factor taken into account when determining premiums.

Claiming the Benefit

The beneficiaries will be entitled to the death benefit if the policyholder passes away while the policy is in effect. The salary insurance plan typically pays the death benefit for the remainder of the policy term. The benefit will be provided to beneficiaries as and when specified in the policy.

Why do you Need Income Protection Insurance?

Plan to purchase an income protection plan if you want to ensure the financial security of your loved ones. Here are a few reasons why you might need income protection insurance.

Secures your loved ones in your absence

Income insurance protection is the perfect solution if you earn a regular income and have family members depending on it for their living. It ensures they do not have to look for other ways to make ends meet in your absence. This policy does that by providing a guaranteed payout on your demise that helps them stay afloat during turbulent times. Moreover, it aids them in fulfilling life’s milestones like:

  • Paying for a child’s education or marriage
  • Adding to funds for a spouse’s retirement
  • Buying a new home/ setting up a business
  • Paying off any debts/ loans left by you

Helps maintain the lifestyle of your loved ones

Apart from giving a fixed payout on your demise, income protection insurance also gives out regular payouts that help your family maintain their standard of living. With it, they do not have to compromise on their spending. Moreover, these steady payouts remove the burden of managing a lump sum amount and prevent a large pool of funds from running out quickly. Small and regular income payouts help to make it easy to manage money and meet needs from time to time.

Keep up with the times and fights inflation

With income protection insurance, you do not have to worry about your invested money remaining dormant. At the end of each policy year, the payout increases by a fixed percentage with a compounding effect. This increase is generally around 5% - 6%, depending on the income insurance company. It counters inflation and gives your loved ones the benefit of receiving the present value of money.

How to Buy Income Protection Insurance?

Income protection plans are one of the best ways to secure your family’s future with regular income-like payouts in the case of your untimely demise. To purchase Income Protection Insurance, follow these steps:

  • Research insurance providers and compare policies to find one that suits your needs.
  • Get quotes from different providers to understand the cost.
  • Fill out an application form that includes information about your health, occupation, and income.
  • Undergo a medical evaluation if required by the insurer.
  • Once approved, you will receive a policy outlining the terms, conditions, waiting period, benefit period, and premium.
  • Pay the premium at regular intervals (monthly or annually) to keep the policy active.

Final Thoughts

With income protection insurance, you get the necessary peace of mind knowing that your near and dear ones will not have to compromise on their financial needs. With it, you can continue to support them, even when you are not around. This plan can be your financial security net in case of unexpected events.

Key Takeaways

  • Salary protection insurance provides financial support to your family in the event of your death.
  • It works by paying out a regular income to your family, which can help them maintain their living standards.
  • You need income protection insurance if you have dependents who rely on your income.
  • To buy the right salary protection insurance, you should consult with an insurance advisor.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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