Income Protection Cover

Income Protection Cover replaces part of your income if you find yourself unable to work due to injury or illness. Those who are self-employed are particularly vulnerable to loss of earnings through illness as they are not entitled to State illness benefit.  Public sector workers are also more commonly arranging their own private cover as public sector sick leave benefits have reduced in recent times. Income protection provides you with a regular replacement income for as long as it takes for you to be fit enough to return to work. This is in stark contrast to a serious illness policy which only entitles you to a lump sum if you make a claim.

How does income protection work?

When you take out the policy, you pay your insurance provider a premium monthly or annually. If you become ill or injured and are hence unable to work during the policy term, you can make a claim and receive a monthly income support for you and your family. You will not be charged a premium throughout the time you are ill. You will continue to receive this income until you are fit to work again or your plan terminates.

Can I benefit from any tax relief on my premium payments?

You can avail of tax relief at the marginal rate on your premium payments. However, keep in mind that if you do make a claim, the income supports made to you will also be subject to income tax, USC and other relevant deductions.

In the case of Executive Income Protection, your employer is responsible for paying your premiums and they too, can avail of tax relief. Premiums can be classified as business expenses and thus can be offset against corporation tax. If you make a claim, the income supports you are entitled to will be paid to your employer who will make the necessary tax deductions (income tax, USC etc) before transferring you the payment.

What factors affect the cost of income protection cover?

• Your occupation
• Your level of cover (which will usually be a % of your income)
• Your deferred period (the length of time you must be out of work due to illness before you receive payments from your income protection policy (usually between 13-52 weeks))
• Your age
• Your health condition including any lifestyle choices which may impact your health (smoking)
• The term of your policy

Note that your current job will be perhaps the deciding factor when an insurance provider is considering granting you cover. Most insurance companies have a structure in place to classify professions based on their level of risk and the likelihood of the policyholder needing to make a claim. There are 5 classes, ordered from low to high risk. Jobs which fall under Class 1 would be considered to have the lowest risk and hence would be charged the cheapest premium. Class 4 occupations are treated as high risk due to increased exposure to dangerous/potentially harmful working environments. Some insurance companies also have a fifth category, Class 5, which is normally considered as too high of a risk to be granted cover. Jobs which may fall under this category include Garda officers, prison officers or farmers. In general, medical and pharmaceutical professionals would fall under categories 2 or 3 and as such, should not have must trouble in obtaining income protection cover, though premiums may be a little higher. Once again, each application is treated on a case-by-case basis and several other factors will be taken into account when a final decision regarding the outcome of your application will be taken.

How much income will I receive if I make a claim?

Your level of cover will usually be a percentage of your earnings prior to sickness or disability. This proportion is usually limited to a maximum of 66-75% of your salary but can be decided by you when you take out the policy. Keep in mind that any other income benefits you may receive (illness benefit, disability benefit etc) will reduce the amount of monthly supports you are entitled to.