Can you afford not to have Income Protection?
Are you a business owner? Self-employed? Do you have sick pay entitlements? Have you ever thought about what might happen if you were unable to earn an Income?
Income Protection also sometimes known as Permanent Health Insurance (PHI) provides you with a replacement income if you are unable to work due to an accident, injury or illness. It can replace up to 75% of your usual income less any social welfare payments when you’re off work. Income protection is a ‘must have’ product for a large proportion of the working population, particularly those who are self-employed, it should not be deemed a luxury purchase. It is particularly important for anyone who is self-employed or a Company Director paying class S PRSI as they are not entitled to the State Illness Benefit. PAYE workers receive a State Illness Benefit of just €188* per week State Illness Benefit.
Just like any other insurance policy, you pay a monthly premium. This premium is determined by your age, term of the cover, occupation, general health and your chosen deferred period. If you are unable to work your chosen Insurance company then provides you with a replacement income until you return to work, or until your chosen retirement date if you’re not fit to return to work before then.
Unlike many other insurance products, if you make a claim, your policy will continue at no extra cost to you, meaning if you have to claim again in the future, your policy will still pay out.
What are the issues that need to be considered before taking out an Income protection policy?
- How much Income Protection do I need?
That’s entirely up to you and how much you can afford. The maximum level of cover that you can insure yourself for is 75% of your earned income, this must include any State Illness Benefit you may be entitled to. This limit is mainly imposed to prevent there being more of an incentive for you to stay at home sick than to be at work. That said, you can insure yourself for less than 75% if you wish, if you feel you could maintain your lifestyle on a lower amount, which would keep the cost of your cover down.
- Tax relief on my premiums
It is the only type of Insurance on which the Government will give you full tax relief at your marginal rate, this in itself tells you just how important this type of cover is. In effect, you can now use your tax bill to start paying for some of your Insurance costs.
For example, a 40 year old male non-smoker, accountant, earns €60,000 per annum. He has chosen to protect 50% of his salary (€30,000 p.a.) until his retirement at 65. He selects a 6 month deferred period and chooses guaranteed, increasing premiums. His gross premium is €80.00 per month yet it only costs him €47.20 per month after tax relief at 41%.
- What is a Deferred Period?
This is an initial waiting time at the start of your claim, It relates to the length of time between when you were last at work and when you start receiving a benefit. You can choose the length of the deferred period, usually 13, 26 or 52 weeks. Simply put, the shorter the deferred period, the dearer the premium. Typically, people choose a deferred period that fits in with their employment or savings. For example, if your employer will pay your salary for six months if you are out sick, you could choose a policy that will start to pay you after six months. As another example, if you are self-employed but have enough savings to cover your living expenses for three months of illness, you could choose a policy that has a waiting period of three months
In summary, Income protection should be considered a necessity rather than a luxury for a large proportion of the working population. Most of us have some form of life Insurance in place, yet statistically we are far more likely to be out of work sick for a long period than to die before you retire. Contact Declan Maher for a quote on the cost of peace of mind on 087 1444977 or email firstname.lastname@example.org