Income protection is an insurance policy that gives you a replacement income if you can’t work because of illness or injury during the term of the policy. It is also referred to as permanent health insurance or salary protection.
Income protection can help you to cover your regular expenses and protect your family’s lifestyle by providing up to 75% of your normal income (up to a maximum earnings limit and less any social welfare payments received) in the event that you are unable to work due to illness or injury.
How does Income Protection work?
If illness or injury prevents you from being able to work, you will start to receive your income replacement payments after your deferral period. The deferral period is chosen when you take out your policy. This is the length of time from when you stop working to when the life company starts paying your income protection benefits. The deferral period can be 4, 8, 13, 26 or 52 weeks.
If you choose a deferred period of 13 weeks, you must have been unable to work for 13 weeks before your income protection benefits will begin. During this time, you may be getting sick pay from your employer so you will not need your income protection. However, if you happen to be self-employed, you will not have any source of income during this period. The longer your deferral period, the lower your premiums will be.
Your income protection payments will continue until you are ready to go back to work full or part-time, or until your policy ends.
Do I Need Income Protection?
If you have only one source of income and you can’t work due to illness or injury, your employer will only pay your salary for a certain period of time. If you are self-employed, you will have no income at all.
You may have to rely on your savings, if you have them. But think about this: the average income protection claim lasts for 6.5 years. €50,000 savings would only last for 3 years based on spending €3,000 a month on your mortgage repayments, car loans, food bills and other expenses.
You can apply for the State Illness Benefit to help you pay your bills. However, this is just €220 per week (as of January 2023) and for many of us, this simply is not enough to cover our basic expenses.
By taking out income protection, you can replace up to 75% of your original earnings (up to a maximum earnings limit, less any social welfare payments). Income protection can help to maintain your financial security when you need it most.
Who is Eligible for Income Protection?
You must be in full-time paid work as a self-employed person, or as an employee or company director to qualify for income protection. Your occupation, health status and age could also affect your eligibility for the cover.
Is Income Protection Expensive?
The cost of income protection will depend on your age, occupation, health status, whether you are a smoker, your deferred period and how much of your income you want to protect.
Under current tax law, payments to income protection plans are eligible for full income tax relief at your marginal rate of income tax (20%/40%). The maximum amount of payments you can claim tax relief on is 10% of your total income for the year.
How Long Does Income Protection Last?
Income protection pays you a regular income until you are able to go back to work or until your policy ends.
Each insurance company offer additional features to their income protection policies. Some of the more common features include:
- Proportionate Payment
If you are only able to return to work part‑time or have to pursue an alternative occupation with a lower income, you may be eligible for a proportional payment to help make up for some of those lost earnings.
- Guaranteed Increase Option
This lets you increase your income benefit by up to 20% of your original amount without giving evidence of your health. This is offered to you every three years.
- Hospital Cash Benefit
You receive a daily replacement income if you are in hospital for more than seven days during your deferred period.
- Waiver of Premium
You will not pay any premiums while in receipt of replacement income payments, but your plan will carry on as normal. This means that if you return to work and need to claim again, you can.
- Relapse Benefit
Your claim will immediately restart if you relapse with the same illness within six months of returning to work. If this happens, you will not have another deferred period.
- Occupation Change
Your plan will continue if you change jobs, regardless of what you will be doing in your new job.
How Do I Apply?
Your first step is to contact us for a review. We will be able to help determine the appropriate level of cover for you.
You can call us on 064 6637393, email firstname.lastname@example.org or call into our office at Upper High Street, Killarney.