Income Protection

Could you survive on €198 per week?*  

You may have mortgage or rent payments to make. You will need to eat and there will be electricity and heating bills and clothing costs for you and your family.

Are you even entitled to Illness Benefit?*

If you are self-employed, or a proprietary director, you most likely will not have any entitlements which means no income.

Protecting your income in case you are unable to work ever again, or for a long period of time after suffering an illness or injury is vital. If you estimate your total income between now and when you expect to retire, you may be surprised to realise how significant an asset it is. Yet, it is probably not something you have previously considered.

Income Protection is also known as Disability Cover or Permanent Health Insurance.

What is Income Protection?

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.

Why do I need Income Protection?

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 €10,296 per annum, just €198 per week (as of 26th March 2018). 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 €198 per week?

Does it cover Redundancy?

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.

What if I change jobs?

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

What if I am made Redundant?

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

What is the maximum Benefit?

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 €10,296 Nil
Max Annual Benefit €27,204 €37,500

Is the Benefit tax free?

No. This is a 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.

How soon does it start paying the Benefit?

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 €27,204 and it will remain level in payment, the premiums would be as follows;

Deferred Period Monthly Premium 
  4 weeks €135.30
  8 weeks €100.53
13 weeks €  71.67
26 weeks €  52.06
52 weeks €  44.45

 Source: www.moneyadvice.ie Represents best market rates for a male non-smoker aged 35 next birthday (1/1/1984) in a Category 1 occupation such as administration or similar. Quotes correct as of 8/5/2018 

Why is there a Deferred Period?

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 6½ 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.

How long will the policy continue to pay the Benefit?

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.

Will the Benefit increase during a Claim?

The Benefit will remain level throughout the duration of the Claim unless you have opted, 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.

Can I claim more than once?

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, on your return to work after a claim, you suffer a relapse within the following 6 months, you will receive your claim immediately without being subject to a further Deferred Period.

Is it expensive?

It can be. The premium is based on the amount of benefit, the deferred period, the policy ceasing age and the type of occupation you engage in. For example, the premium for an accountant with a deferred period of 26 weeks and a ceasing age of 60 would be much less than that for a nurse with a 13-week deferred period and a ceasing age of 65.

What about tax relief on the premiums?

The premiums qualify for tax relief at your marginal rate, so that means the monthly cost in many cases can be reduced by 40%.

I’m a Proprietary Director. Can my Company pay the premiums?

If you are a business owner, the policy can be arranged in the Company name. The Company may offset the cost against profits and there is no Benefit-in-Kind liability generated for the individual.

Do I still pay the premiums if I am receiving the Benefit?

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.

What happens if my salary increases?

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.

* State Illness Benefit for a single person is €198 per week (www.welfare.ie 1/6/2018)

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