Your income is probably your greatest asset and yet only 17% of employed people in Ireland have taken out Income Protection insurance. Indeed, this alarming statistic may be related to an often-held misconception that this type of cover is only necessary for self-employed people. Although it is important that the self-employed hold this type of cover, it is equally important that PAYE workers protect themselves financially against suffering an illness or an accident. In fact, most PAYE workers are now only paid for a maximum of six months; when that period expires the mortgage, and the bills will still have to be paid.
The good news is that unlike Life Insurance or Specified Illness Cover, premiums usually qualify for full tax relief.
How much Income Protection cover do I need?
You can cover yourself for us to 75% of your current earnings less the State Benefit. You may not qualify for the State Benefit but if you do it currently stands at €203.00 per week. Cost can be an issue and many people choose not to insure their income for the maximum level and instead use a facility contained in most policies whereby they can increase their level of cover by up to 20% every three years without the need to provide medical evidence.
How soon after suffering an accident or illness will the benefit be paid, and how long will it last?
When you are setting up your Income Protection policy you can opt for a ‘Deferred Period’ of 4, 8, 13, 26 or 52 weeks. This is the time you need to be absent from work before you start receiving your income. The premium you pay will depend on which Deferred Period you oft for: the longer the Deferred Period, the lower your premium. The benefit will cease at the age you chose when you took out the policy, or if you return to work before then.
What illnesses are covered?
Unless there is a specific exclusion in your policy, usually related to a pre-existing medical condition, all illnesses are covered. These can be common diseases, back problems or mental or nervous conditions. In such a way, cover under an Income Protection policy is much more comprehensive than under a Specified Illness policy.
Specialist Income Protection providers such as Royal London and Aviva offer really competitive rates. Moreover, as noted, premiums are usually fully tax deductible resulting in savings of 20-40% depending on your tax rate. In terms of cost, important considerations are whether you opt for Guaranteed or Reviewable premiums or Fixed or Escalating Benefits. At Jameson Financial we usually recommend our clients to opt for Guaranteed Premiums which may be slightly more expensive in the early years, but invariably offer substantial savings over the term of the policy. Equally, we would recommend that our clients opt for escalating benefits because in the event of the long-term claim, inflation could have a detrimental effect on the benefit being paid.
Factors which have a bearing on the cost of our Income Protection Insurance include:
- Level of cover
- Duration of Deferred Period
- Current health
- Guaranteed or Reviewable premiums
- Index linked or fixed benefits
Finally, for those in higher risk occupations – such as some trades – which often attract premium loadings, Jameson Financial is happy to advise customers on Aviva’s Wage Protector. This product offers lower premiums than tradition Income Protection policies and will pay an income for a maximum of two years.