Income Protection Insurance (IPI) also known as loss of earnings insurance is an

insurance policy In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claim (legal), claims which the insurer is law, legally required to pay. In exchange for an initial ...

paying benefits to policyholders who are incapacitated and hence unable to work due to

illness A disease is a particular abnormal condition that adversely affects the structure or function (biology), function of all or part of an organism and is not immediately due to any external injury. Diseases are often known to be medical condi ...

accident An accident is an unintended, normally unwanted event that was not deliberately caused by humans. The term ''accident'' implies that the event may have been caused by Risk assessment, unrecognized or unaddressed risks. Many researchers, insurers ...

. This is typically a replacement for lost income suffered by the policy holder. These policies were formerly called ''Permanent Health Insurance'' (PHI). This type of insurance does not normally cover redundancy and does not pay for medical treatment, it is designed to only pay a monthly amount to cover the loss of income by the policy holder when they are unable to work due to illness or accident. Income Protection Insurance is principally available in

Australia Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...

Ireland Ireland (, ; ; Ulster Scots dialect, Ulster-Scots: ) is an island in the North Atlantic Ocean, in Northwestern Europe. Geopolitically, the island is divided between the Republic of Ireland (officially Names of the Irish state, named Irelan ...

New Zealand New Zealand () is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and List of islands of New Zealand, over 600 smaller islands. It is the List of isla ...

South Africa South Africa, officially the Republic of South Africa (RSA), is the Southern Africa, southernmost country in Africa. Its Provinces of South Africa, nine provinces are bounded to the south by of coastline that stretches along the Atlantic O ...

, and the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

. A similar insurance product is available in the United States known as "disability income insurance" (

disability insurance Disability Insurance, often called DI or disability income insurance, or income protection, is a form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for completion of core work func ...

). A study by British insurer

Legal & General Legal & General Group plc, commonly known as Legal & General, is a British multinational financial services and asset management company headquartered in London, England. Its products and services include investment management, lifetime mortg ...

in 2014, titled "Deadline to the Breadline Report", found that only 8% of UK households had income protection insurance.

Tax treatment by country

Australia

Income protection premiums in Australia is tax deductible though the payments received are taxable.

Ireland

Higher earners can claim back up to 40% of their premiums back as tax relief annually. In Ireland, the maximum payout threshold is 75% of prior gross salary.

New Zealand

Income protection insurance in New Zealand is more complicated as it depends on whether or not the payments are related to

superannuation A pension (; ) is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be either a "Defined benefit pension pla ...

. In most cases premiums are tax deductible as long as the payouts are taxable. New Zealand has an accident compensation scheme known as

Accident Compensation Corporation The Accident Compensation Corporation (ACC) () is the New Zealand Crown entity responsible for administering the country's No-fault insurance, no-fault accidental injury compensation scheme, commonly referred to as the ACC scheme. The scheme pro ...

(ACC) that covers lost income resulting from accidents. Income Protection Insurance can be used in addition to ACC as ACC may not fully replace the income and offers no support for illnesses.

United Kingdom

Income protection is not tax deductible in the UK, however exceptions are available for the self-employed and for company directors.

References