Income protection insurance offers a safety net by providing a regular cash payment if you’re unable to work due to a prolonged illness, injury, or disability. This is different from private health insurance and doesn’t cover redundancy.
What is Income Protection Insurance?
Often referred to as ‘permanent health insurance’ (PHI), this insurance is designed for those in full-time employment or self-employed individuals. However, obtaining this insurance can be challenging or costly, depending on your profession and health. Some insurers even exclude certain occupations from their policies.
How Does It Operate?
The policy kicks in if you can’t work due to illness, injury, or disability and don’t have another job. If you have a secondary job and can still work there despite your condition, you won’t be eligible for a claim on your primary job’s income protection.
The Deferred Period refers to the waiting time before your benefits start. Options typically include four weeks, 13 weeks, 26 weeks, or 52 weeks. Shorter deferred periods, like four weeks, are generally more expensive than longer ones. Some policies might not have any waiting period. Before deciding, consider any sick pay benefits your employer might offer.
Important Note: Some policies only cover severe disabilities, meaning you’d need to be permanently and severely disabled to claim any benefit. Ensure you understand the specifics of your policy.
Do You Require Income Protection?
Income protection might be a crucial consideration for you if you’re self-employed and would find yourself without an alternative source of income in the event of illness or disability. It’s also essential for those who receive little to no sick pay from their employers. If you don’t have the safety net of an ill-health pension protection or if you have dependents who heavily rely on your income, this insurance becomes even more vital.
Additionally, if you don’t have other means of income or if your existing benefits aren’t sufficient to cover your lost income or expenses, income protection can be a lifeline. However, before making a decision, it’s wise to check if you’re entitled to other benefits. These can include the social welfare illness benefit (although this isn’t available for the self-employed), the social welfare disability benefit (also not for the self-employed), any sick pay your employer might offer, or the possibility of an ill-health retirement pension.
Determining Your Income Protection Amount
For those with individual policies, the insured amount is something you decide upon when initiating the policy. However, there’s typically a cap on the maximum amount you can insure. This is often set at 66% or 75% of your earnings before any illness or disability, but it’s essential to account for other income sources like sick pay, which can reduce the amount. On the other hand, if you’re part of a group scheme, the amount you receive is based on a percentage of your earnings as defined in the group policy. This amount will also be adjusted by subtracting any other benefits you might receive while out of work, such as sick pay or the social welfare disability benefit.
Joe’s Benefit Calculation:
- 75% of €40,000 annual salary = €30,000 or €2,500 monthly.
- Minus €750 sick pay.
- Minus €750 social welfare.
- Total benefit per month = €1,000.
Had Joe been self-employed, he wouldn’t get the social welfare disability benefit or employer’s sick pay. His benefit would equal his insured amount: €2,500 monthly. Remember, actual calculations vary based on individual policies and entitlements.
Tax Relief: Payors can benefit from a tax relief on income protection premiums at standard or marginal rate (20% or 40%). Tax relief has to be claimed on an annual basis from Revenue , it is not applied at source.
Don’t leave your financial well-being to chance. If you’ve recognised the importance of income protection from our discussion, it’s time to take the next step. Roban Financial is here to guide you through the intricacies of income protection insurance, ensuring you and your loved ones are safeguarded against unforeseen circumstances. Reach out to Roban Financial now and let us help you craft a tailored plan that aligns with your needs. Your future self will thank you.
