An Income Protection policy is a simple, tax efficient & inexpensive plan that provides you with a source of income if you are unfortunate enough to be out of work and suffer a loss of earnings as a result of a illness, disability, an injury or an accident
If you were unable to carry out your normal occupation for a prolonged period due to an illness or injury, could you continue to meet your financial commitments? Who would pay your mortgage repayments, personal loans, medical bills or even your children’s school expenses?
You may need income protection if:
you are self-employed
you have little or no sick pay from your employer
you have no ill-health pension protection.
If you have an individual policy, you can set the amount you want to be insured for, when you take out the policy. The policy terms and conditions will tell you the maximum amount you can claim. It is usually 75% of your earnings before you became ill or disabled, less any other income you get while out of work, such as sick pay.
Usually your benefit payment stops as soon as one of the following happens:
you return to work
you reach age 55, 60 or 65, depending on the policy
the insurer’s medical officer, who may check your medical condition from time to time, decides that you are fit to return to work
Income Protection provides you with a regular income, which is paid to you if you are out of work due to illness or injury.
It is designed to replace some of your earned income if you can no longer earn an income yourself. The payment would commence once you have been off work for a certain length of time, know as the “deferred period”. The payment would continue until you have recovered and are fit to return to work or until your chosen retirement age.
Protecting Your Income Protects a Lot More than your Income!
If you had to give up work due to illness or injury, how would you pay your regular bills? You may also have the additional burden of extra medical costs. Could you continue to pay these bills if you lost your regular income? If the answer is no, you need income protection.
You can protect up to 75% of your annual Income
You can set the amount that you wish to be insured, however the maximum benefit is 75% of your annual salary less the State Illness benefit (if applicable) which is currently approximately €10,000. (Note that State Illness Benefit is not paid to self-employed people). There are limits on the maximum income level that you can cover. These limits vary across the insurance companies, but typically it is up to 75% less the State Illness Benefit.
Changes to the Amount of Cover
It is important to review your policy regularly to ensure that you are adequately insured and indeed not over insured. In the event of you needing to claim the insurance provider will pay out based on your actual earnings, not the level of cover you have insured for.
Additional benefits that you can include in your policy are indexation and escalation.
You can choose to include indexation on your plan. This means that your benefits will increase each year to keep them in line with inflation. Your premium will also increase.
You can also select escalation. This feature means that your income benefit will increase/escalate during a claim. Your premium does not change. You can choose either, or both of these options, or you can choose to have your benefit and premium remain level throughout your plan.
Does occupation come into it?
Your occupation is very important as not all occupations are covered; particularly occupations that have a degree of occupational risk, e.g. working with hazardous materials or working in confined spaces. Below is a table that will give you a good idea of what class your occupation falls into but it is not the definitive guide as there are some small differences between the various life companies.
White- collar occupations: no appreciable accident or health risk. These occupations will usually be office based. Examples include accountants, GP, IT consultant, solicitor, administrators etc.
Mainly white – collar and predominantly administrative. Driving may be involved. Examples include quantity surveyor, dentist, sales rep etc.
Skilled occupations, which may involve light manual duties but heavy lifting is rare. Examples include interior painters, foremen, electrical engineers and domestic electricians, nurses etc.
Skilled tradespersons, working on construction sites using light power tools. Examples include carpenters and plumbers.