Income protection insurance is a type of death insurance that allows you to receive insurance money if the insured person (the person covered by the insurance) dies or becomes seriously disabled.
If you want to prepare for the financial risk of your family being left behind in the event of an emergency, this insurance product may be a candidate for your purchase, but depending on your life plan, other death insurance may be more suitable than income protection insurance. There is also.
In this article, we will provide an easy-to-understand explanation of what income protection insurance is, its differences from term insurance and disability insurance, and its advantages and disadvantages.
If you are considering purchasing income protection insurance, be sure to understand the advantages and disadvantages before choosing the product that is suitable for you.
Income protection insurance is life insurance that allows you to receive money in the form of a pension in the event of an emergency.
Compare the differences between income protection insurance and term insurance
- ・Whether or not there is an update
- ・How to receive death benefit
Compare the differences between income protection insurance and disability insurance
Advantages and disadvantages of income protection insurance
- ・Advantage 1: You can receive insurance benefits regularly, such as monthly or yearly.
- ・Advantage 2: You can prepare the necessary amount of insurance money at the necessary time.
- ・Disadvantage 1: Since it is a “disposable” insurance product, there is no surrender value.
- ・Disadvantage 2: If you try to receive the insurance money all at once, the total amount received will decrease.
If you are unsure about how to enroll or choose income protection insurance, use a comparison site.
Supervisor information
Income protection insurance is life insurance that allows you to receive money in the form of a pension in the event of an emergency.
Income security insurance is death insurance that allows you to receive insurance benefits in the form of an annuity or a lump sum if the insured person (person covered by insurance) dies or becomes severely disabled. It is a type of
Term life insurance (death insurance) is not guaranteed for a lifetime, but has a fixed period of coverage, from the time the insured person dies or becomes severely disabled until the end of the insurance period *, insurance money It is possible for the beneficiary to receive the insurance money in the form of a pension.
*Some products have a minimum guaranteed period, which means that you can receive benefits for at least several years (for example, 2, 5, 10, etc.) even if you die at any time during the insurance period (details will be explained later).
Other types of death insurance that pay out in the event of an emergency include term insurance and whole life insurance. The differences with income protection insurance include the following (we will also discuss the differences between term insurance and income protection insurance in detail later).
| Types of life insurance | income protection insurance | term insurance | whole life insurance |
|---|---|---|---|
| How to receive insurance money | In addition to receiving pension money, you can also choose to receive it in a lump sum. | In principle, lump sum receipt | |
| Insurance amount | Varies depending on the time of receipt and method of receipt (in the case of lump-sum receipt, the total amount received is generally smaller than in pension-style receipt) | You can receive the amount of insurance money decided at the time of the contract, regardless of when you receive it. | |
| Period of insurance | a certain period | a lifetime | |
In principle, term insurance and whole life insurance receive the insurance proceeds in a lump sum, but with income protection insurance, the insurance proceeds can be received in the form of an annuity in the event the insured person dies or becomes severely disabled. Masu.
In addition to the pension format, you may be able to choose from a variety of other options, such as “receiving a lump sum as a lump sum,” or “receiving a portion of the benefit in one lump sum and making the rest into an annuity.”
However, in many cases, the total amount received will be less if you receive the lump sum than if you receive it in the form of an annuity, so be careful in such cases.
In addition to income protection insurance, the total amount received varies depending on not only the method of receiving the insurance money but also the timing of the insured’s death or severe disability (time of receipt).
For example, let’s say a 30-year-old insured subscribes to income protection insurance with a benefit of 100,000 yen/month that can be received at the age of 60. If the insured dies at the age of 40, the total amount of insurance money that can be received is 100,000 yen x 20 years (240 months) = 24 million yen. On the other hand, if the insured dies at the age of 50, the total amount received will be 100,000 yen x 10 years (120 months) = 12 million yen.
In the event of an emergency, the amount of money (required amount of coverage) needed by the surviving family will vary depending on the family composition and life stage. For example, if you are married and have children, you will need coverage that takes into account not only your family’s living expenses but also education expenses. However, as the child grows up, there is no need to consider the amount of education and living expenses that have already passed, so it can be said that there is no problem in reducing the amount of insurance coverage compared to when the child was small.
Income protection insurance, in which the total amount of insurance proceeds decreases depending on the period that has elapsed from the contract date, is suitable for people whose required amount of coverage decreases.
On the other hand, with term insurance or whole life insurance, you can receive the death benefit in the amount determined at the time of the contract, regardless of when it is received.
If you want to secure a certain amount of coverage for your child’s college education expenses, your funeral expenses, etc., term insurance or whole life insurance with a fixed amount of insurance may be suitable.
Please note that some income protection insurance policies have a “minimum guaranteed period” for the period during which insurance benefits can be received.
The minimum guarantee period is the period during which the insured will be able to receive insurance benefits for at least several years in the event of death or severe disability. The guarantee period (number of years) differs depending on the insurance company and insurance product, but generally, you can select a period such as 1 year, 2 years, or 5 years when signing the contract.
For example, let’s assume that the policy is signed until the insured reaches the age of 60 and comes with a minimum guaranteed period of two years. In this case, even if the insured dies at the age of 59, the benefit period will not end in one year until the insured reaches the age of 60, but the insured will always be able to receive the insurance money for the minimum guaranteed period of two years.
Compare the differences between income protection insurance and term insurance
Death insurance can be broadly classified into whole life insurance, which provides coverage for a lifetime, and term insurance, which provides coverage for a predetermined period.
Income protection insurance has a fixed period of coverage and is classified as a type of term insurance. So, what is the difference between regular term insurance and income protection insurance?
Each is explained in detail below.
Whether or not there is an update
Income protection insurance is insurance that can protect against the risk of a worker dying and having their income cut off, so it is necessary to purchase insurance at the time of retirement, the start of receiving pension benefits, the time when children become independent, etc. The general idea is to set a period.
In addition, many products provide coverage until the age of 60 or 65, and the contract cannot be renewed.
On the other hand, for term insurance, there are insurance products that allow you to choose not only the term of insurance until age but also 10 or 15 years from the date of the contract, such as “coverage for 〇 years (expiration in 2018)” *1. In the case of term insurance that expires in 2019, you can continue the coverage by renewing the insurance period *2 (term insurance that expires in 2018 cannot be renewed).
*1 Depending on the insurance product, you may only be able to choose between age maturity and year maturity.
*2 There is generally an upper limit, such as 80 years old, for the age at which the coverage period can continue after renewal.
Term insurance is for people who want to review their coverage according to changes in their lifestyle and household finances, and income protection is for people who are clear on how long and how much coverage they need, such as until their children become independent. Insurance may be appropriate.
How to receive a death benefit
Term insurance benefits are received in a lump sum. On the other hand, income protection insurance benefits are received in the form of a pension.
Term insurance is suitable for cases where you need a lump sum of money at once, such as for your child’s college education expenses, funeral expenses, and funds for paying inheritance tax.
You can also receive insurance benefits in a lump sum with income protection insurance, but the total amount of insurance benefits you receive will be smaller than if you receive it in the form of an annuity, so term insurance is better for cases where you need a lump sum of money at once. It is suitable.
On the other hand, income protection insurance is reasonable for preparing regularly needed money such as monthly living expenses. With term insurance, if you are unable to use the lump sum insurance proceeds in a planned manner, you may run out of funds when you need them.
Compare the differences between income protection insurance and disability insurance
An insurance product that is often compared and confused with income protection insurance is “unemployment insurance.”
“Income security insurance” and “unemployment insurance” are often confused because of their names, but the coverage is quite different.
Income protection insurance is insurance that allows the surviving family members to receive insurance money if the insured person dies or becomes severely disabled, and is purchased to protect the family’s livelihood.
Disability insurance, on the other hand, is insurance that allows the insured person to receive benefits if the insured person is unable to work for a certain period due to illness or injury, resulting in a reduction in income. This is insurance that you take out to protect your life. You can receive benefits if you are unable to work for a period determined by each insurance product, such as 60 days or 180 days, but death is not covered and there is no death benefit.
Advantages and disadvantages of income protection insurance
The advantages and disadvantages of taking out income protection insurance include:
| merit | Demerit |
|---|---|
|
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*1Comparing the total amount of insurance proceeds received immediately after contracting income protection insurance with the premium of term insurance with the same insured amount.
*2 There are also insurance products that allow you to receive a maturity benefit by adding a special clause.
Let’s take a closer look at each.
Advantage 1: You can receive insurance benefits regularly, such as monthly or yearly.
Income protection insurance, which can be received in the form of an annuity, allows you to receive a fixed amount of insurance benefits regularly. Therefore, there are benefits such as “making it easier to maintain your current lifestyle” and “making it easier to check your income and expenditure.”
This will prevent you from spending too much too early and running out of money, which can happen if you receive a large amount of money in one lump sum.
The amount of insurance you will receive each month must be determined at the time of signing the contract. Be sure to set the amount based on your current standard of living and take into account changes in your income and expenses if the insured person dies.
Advantage 2: You can prepare the necessary amount of insurance money at the necessary time.
As mentioned above, with income protection insurance, the total amount of insurance benefits received decreases as the insurance period passes.
For example, if you have children, the total amount of education and living expenses they will need in the future will decrease as they grow up, so preparing for them with income protection insurance can be very efficient.
Disadvantage 1: Because it is a “disposable” insurance product, there is no surrender value.
Income protection insurance is a so-called “disposable” insurance product. There are no or very few surrender charges.
In addition, if the expiration date does not fall under any of the reasons for insurance claim payment, the insurance contract will be terminated without receiving any insurance money. Therefore, it is quite possible that you may have paid insurance premiums for a long time, but ended up receiving nothing.
Disadvantage 2: If you try to receive the insurance money all at once, the total amount received will decrease.
Income protection insurance is received in the form of an annuity, and if you choose to receive it all at once, the total amount of insurance benefits you will receive will be smaller than if you receive it in the form of an annuity. Therefore, think of it as insurance to ensure the daily living expenses of the surviving family members.
For example, if you have a need such as “I want to cover funeral expenses in case I die” or “I want to leave a large amount of money aside for my child’s educational expenses,” instead of income protection insurance, term insurance with a fixed amount insured during the insurance period can be used. You may also want to consider options such as whole life insurance, and educational endowment insurance that exempts you from future premium payments in the event of an emergency and allows you to receive your educational funds upon maturity.
If you are unsure about how to enroll or choose income protection insurance, use a comparison site.
There are various types of life insurance, including income protection insurance. For this reason, some people may be wondering, “Should I get income protection insurance?” or “I want to consider other types of life insurance.”
If you are unsure about how to choose or enroll in income protection insurance, we recommend using a comparison site where you can compare and consider multiple insurance products. You can easily compare by selecting the insurance product, age, and insurance period.