A Guide to Income Protection

Life is full of unpredictable events, and unforeseen circumstances like illness or injury can significantly impact our ability to work and earn money. This is where income protection insurance becomes crucial. In this guide, we will address some of the most common questions about income protection insurance, empowering you to make an informed decision about safeguarding your income and securing your future.

What is Income Protection Insurance?

Income Protection Insurance is a policy designed to provide a replacement source of income if you are unable to work due to illness, injury, or disability for a specified period. It acts as a financial safety net, offering supplementary income during challenging times as outlined in the policy terms.

Eligibility for Income Protection Insurance

You can obtain an income protection policy if you meet either of the following criteria:

•          You are employed full-time (working more than 16 hours per week), or

•          You are self-employed and earn a wage.

Key Features of Income Protection Insurance

The specific benefits and coverage included in an income protection policy may vary depending on the terms and conditions. However, some common features are:

• Guaranteed premium option: The cost of your insurance remains fixed, even if you make a claim.

• Up to 75% income replacement: You can receive financial support up to 75% of your income, enabling you to support your loved ones while you are unable to work.

• Portability: You can maintain your Income Protection policy even if you change jobs within the European Union.

• Coverage increase: The policy allows you to increase your cover every three years by up to 20% of the original amount, without additional medical assessments.

Who Should Consider Income Protection Insurance?

Income Protection Insurance is suitable for anyone who meets the eligibility criteria. Here are some common situations where it can be beneficial:

• Individuals aged 18-54 in full-time employment or self-employment.

• Individuals seeking to protect a portion of their income until the age of 70 in case of illness or injury.

• Those in need of regular income if they cannot work due to an illness or injury, with a specific waiting period (deferred period) before the benefit payment begins.

• Individuals looking to enhance their coverage in the future.

• Those who want continuous cover regardless of the number of claims made.

Determining the Right Amount of Income Protection

The appropriate level of income protection depends on your unique financial situation and goals. Generally, you can protect up to 75% of your income. However, consulting with a financial advisor is advisable to accurately assess the amount of coverage you require. Factors such as essential bills, living expenses, mortgage payments, groceries, and electricity costs should be considered when determining the percentage of your salary to cover with Income Protection Insurance.

Cost of Income Protection Insurance in Ireland

The cost of income protection insurance in Ireland varies based on several factors, including age, health, occupation, and the chosen level of coverage. Generally, younger and healthier individuals can expect lower premiums for income protection insurance.

Coverage for Mental Health Conditions

Yes you will have coverage for mental health conditions.

Do You Need Income Protection Insurance?

Income protection insurance is essential for individuals who want to secure their income in case they are unable to work due to illness, injury, or disability. It is particularly beneficial for those with dependents relying on their income or individuals with significant financial commitments. You may need income protection if:

• You are self-employed and would have no alternative income sourceif you couldn't work due to illness or disability.

• Your employer offers little or no sick pay.

• You have dependents who depend on your income.

• You have no other source of income.

• Your existing benefits are insufficient to replace your lost income and cover expenses.

• You lack sufficient savings to sustain long-term income loss.

Coverage for Redundancy

Income protection insurance covers loss of income due to illness or injury as specified in the policy. It does not cover redundancy.

Multiple Claims and Deferred Period

An income protection policy allows you to make multiple claims as needed. For example, if you become ill, make a claim, recover, and return to work after three years, you can make a claim again if you experience another illness or accident. If you relapse with the same illness, you won't need to serve the deferred period again. However, if it's a different illness, the deferred period must be served.

Understanding the Deferred Period

The deferred period, also known as the waiting period, is the duration between when you become unable to work due to illness, injury, or disability and when your income protection insurance payments commence. You can select a deferred period that aligns with your needs and budget when purchasing the policy. Typically, deferred periods range from 4 to 52 weeks. During the deferred period, you cannot make a claim.

Duration of Income Protection Payments

The duration of income protection payments depends on the terms and conditions of your specific policy. Benefit payments usually cease under the following circumstances:

• You return to work after recovering from the illness or injury.

•  You reach the age specified in your policy.

•  You pass away.

Tax Benefits of Income Protection Insurance

Income protection insurance premiums can qualify for tax relief at your marginal (highest) tax rate. To understand the tax returns you can obtain from your income protection insurance, consult with a financial advisor. If you are part of a group scheme, where your employer deducts the premium from your salary before tax, you would not be eligible for additional tax relief as you have already received the tax benefit.

How to Make an Income Protection Insurance Claim

To make a claim for income protection insurance due to illness, injury, or disability, follow these steps:

• Check if you have reached the end of your deferred period, allowing you to make a claim.

• Notify your insurance provider about your intention to make a claim.

• Complete the claim form provided by your insurance provider.

• Submit the required documentation to support your claim.

Occupation and Income Protection Eligibility

Certain occupations may not be covered due to higher risk factors associated with those roles. The coverage of occupations can vary among income protection providers. It is advisable to consult with a financial advisor or insurance provider to determine the extent of coverage for your occupation.

Conclusion

Income protection insurance plays a vital role in safeguarding your income during challenging times caused by illness, injury, or disability. By understanding the features, eligibility criteria, coverage options, and claiming process of income protection insurance, you can make an informed decision to protect your income and secure your financial future. Remember to consult with a financial advisor for personalized advice based on your specific circumstances.