Income protection insurance can be a valuable financial planning tool to help you replace a portion of your typical income should you become unable to work due to a serious illness or injury. However, that doesn't mean that your income protection insurance policy will pay out in every circumstance where you're out of work.

Here are three scenarios where your income protection insurance probably won't serve as replacement income:*

• 1. You lose your job due to incompetence.

  If you're fired from a job because you weren't a good fit for the job or company, you were violating company rules, or if for some reason you intentionally tried to get dismissed, you won't collect on an income protection insurance policy.

• 2. You quit.

  Quitting your job also isn't grounds for an insurance policy pay out (if it were, people would be quitting their jobs left and right to start collecting insurance cheques).

• 3. You lose your job due to economic conditions.

  Unfortunately, even if the economy forces your employer to lay you off (and losing the job is of no fault of your own), you still won't likely be eligible for income protection insurance*.

Income protection insurance is specifically designed to protect your income to help you support yourself and your family in the case of illness or injury that puts you out of work. Even being ill or injured doesn't guarantee payment though.

Like with total and permanent disability insurance, your income protection insurance could cover you if you're unable to work in your original line of work or it might only cover you if there are no jobs you're qualified to take on in your condition. It will be up to you to decide which kind of coverage you want when choosing a policy.

You also probably won't be covered if you lose income temporarily due to minor injuries. That's because income protection insurance plans come with a waiting period. In other words, you have to be out of work for a certain amount of time before your benefits would begin to kick in. The good news however is that you'll generally be allowed to choose between several waiting periods when you apply for your policy (although you'll pay higher premiums for shorter waiting periods before payments).

* Note that exact situations covered and not covered by your income protection insurance policy may vary between insurance companies. Please check details of your policy with your insurance provider.

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