Income Protection – Frequently Asked Questions

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Income Protection is also known as Permanent Health Insurance (PHI) or Disability cover. It is sometimes provided by employers as part of their employee benefits package. In most cases, though, it is bought by individuals seeking to protect their most valuable asset, their income.

If you can’t work for a continuous period of time as a result of any illness or injury, Income Protection pays a regular monthly benefit as a percentage of your salary until you are able to return to work or reach your selected ceasing age.

If you are a PAYE worker, you may be entitled to receive Illness Benefit from the Department of Social Protection. The current single persons benefit is €10,036 per annum, just €193 per week. If you are a company director or self employed, you will receive no State support if you are unable to work.

Even with the entitlement to Illness Benefit, can you really keep a roof over your head and pay your regular bills on €193 per week?
Figures correct as at 10/08/2016. Source: Department of Social Protection – www.welfare.ie

No. Sometimes this cover gets confused in people’s minds with Mortgage Payment Protection cover, where a benefit typically equal to the monthly mortgage repayments is paid for the first 12 months of a redundancy or sickness.

Income Protection covers your loss of income following a set period of absence from your employment as a result of injury or illness until you are able to return to work.

Most insurance companies will continue to provide cover if you change jobs, regardless of what the new job is entails.

You can continue your plan if you wish but you will not be able to make an Income Protection claim whilst you are unemployed.

The maximum Benefit you can purchase is 75% of your annual salary less any State Illness Benefit and any other Income Protection plans. For example;

PAYE Employee Self- Employed
Annual Salary €50,000 €50,000
75% of Salary €37,500 €37,500
State Illness Benefit €10,036 Nil
Max Annual Benefit €27,464 €37,500

This example is used for illustration purposes only. Figures correct as at 10/08/2016

No. This is policy which replaces income lost through illness or injury and is paid to you in the same way you receive your regular income – net of Income Tax, PRSI and USC.
The Benefit is paid following a deferred period, i.e. you must be out of work following an injury or illness for a minimum continuous period of time. This period will depend on your individual circumstances and your employment benefits. The shorter the deferred period, the more expensive the cover will be. For example, where the Annual Benefit is €27,724 and it will remain level in payment, the premiums would be as follows;

Deferred Period Monthly Premium
4 weeks €133.65
8 weeks €90.36
13 weeks €68.24
26 weeks €40.87
52 weeks €35.37

This example is used for illustration purposes only. Figures correct as at 10/08/2016 Source: www.adviserplus.ie. Represents best market rates for a male non-smoker aged 35 next birthday (1/1/1981) in a Category 1 occupation such as administration or similar

Income Protection is a long term policy with comprehensive benefits. Friends First, one of the leading providers of Income Protection in Ireland says that its average Income Protection claim is 5½ years in duration. Most people will be able to cope if they are out of work for a month or two. For those that are more concerned with an immediate impact to their income, there are alternative short term policies out there such as Personal Accident and Payment Protection Insurance. These policies typically have exclusions such as pre-existing conditions and pay benefits for no more than a year or two.
The policy will pay you your Benefit for as long as you are unable to work until you are fit again or reach your selected policy ceasing age.
The Benefit will remain level throughout the duration of the Claim. You can, however, opt at proposal stage, to have the Benefit increase at 3% per annum whilst in payment. If you choose this option, the Benefit will revert back to the original amount once the claim has finished.
You can claim as many times as you require during the lifetime of the policy. Each separate claim will be subject to the Deferred Period. However, if you return to work following a claim and subsequently suffer a relapse within the following 6 months, you will receive your claim immediately without being subject to a Deferred Period.
The premiums qualify for tax relief at your marginal rate, so that means the monthly cost in many cases can be reduced by 40%.
Figures correct as at 10/08/2016
If you are a business owner, the policy can be arranged in the Company name. The Company may set the cost off against profits and there is no Benefit-in-Kind liability generated for the individual.
Typically, you do not have to continue paying the premiums while you are receiving payment of the Benefit. However, once you are finished your claim, you must recommence payment of the premiums to maintain the cover.
You can build inflation protection into your plan so that the benefit increases each year. Please note that the premium will increase also. Alternatively, most plans provide an option every 3 years to increase the Benefit by up to 20% of the original amount without the need to provide further evidence of good health.

Now, some questions for you!

Thank you for visiting us. Before you go, please try to answer the following questions;

• If I am sick, how long will my employer pay my salary?
• Does my employer provide any Income Protection cover for me?
• Am I entitled to the State Illness Benefit and if so, how much?
• How much would I need each month just to fund necessary expenses?
• How long could my savings last if I had to use them to pay these expenses?

If your answers are causing you concern, maybe you should talk to us on 1890 428 343

 

The information contained in this page is based on our understanding of legislation as at 10th August, 2016 which may change in the future. While great care has been taken to ensure the accuracy of the information it contains, we cannot accept responsibility for its interpretation, nor does it provide legal or tax advice.