Income protection insurance is a type of coverage that provides financial support should you become unable to work due to illness or injury for example.
It can be arranged for employees, the self-employed and limited company directors. Group income protection schemes can also be set up for companies and to cover employees in the event of illness.
The cost of income protection depends on many factors: how much income you want to insure and for how long, age, health, smoking status, risk levels associated with the nature of your employment etc.
Income protection can be expensive but unlike life insurance, there is tax relief available at your marginal rate on the cost of premiums.
To control premium costs, MOJO Finance generally advise insuring to cover your expected monthly outgoings and a little extra (mortgage, bills, etc.). That would be a good start and give you peace of mind that in the event of long-term illness, you can focus on solely addressing the health issue as opposed to also dealing with a financial issue!
You don’t need income protection until you need it! But should you become ill will be too late to put income protection in place. You will have become ineligible for cover or may get cover for a prohibitively expensive amount. So, protect your most valuable asset whilst you are in good health!
Advisors and brokers much prefer talking about things like wealth building, tax reduction, and investment lump sums! But we also know that it is our duty to remind customers that Protection is the cornerstone of good financial planning and income protection provides a ‘living benefit’.
What are the key Benefits of Income Protection?
1. Income protection provides Peace of Mind.
Having a financial safety net in place can provide peace of mind for those with income protection in place.
If you become unable to work, then a replacement income will allow you to focus on getting better as opposed to figuring out how you will meet your financial obligations.
You can now solely focus on the health issue rather than both a health and financial issue.
2. Income Protection provides Financial Security.
Income protection will provide those covered with a regular and predictable income stream. This can be up to 75% of your salary minus the state disability allowance.
So, for example, a person with a salary of €60k can get insured for up to €33,650 which would provide €2,800 income monthly.
Some employees receive sick pay from their employer and for up to 6 months. When employment support ends, then income protection payments can kick in.
3. There is flexibility in the payouts from income protection.
Income protection policies offer flexibility and choice in how payouts are made.
For example, to reduce the cost of monthly premiums, policy holders may choose a longer Deferred Period of 6 months.
The Deferred Period is the time-period between when you become too ill to work and when the policy begins making monthly payments.
This flexibility will allow holders to tailor a policy to their specific needs and budget.
4. Tax Relief on Income Protection premiums
The cost of income protection depends on many factors: how much income you insure, the length of time of the policy, age, health, smoking status, the health risk associated with your profession etc. Income protection can be expensive but unlike life insurance, there is tax relief available at your marginal rate on the cost of premiums.
So, if the premium is €100 per month, then the net cost is €60. Here the government is actively incentivising you to protect your future income.
For business owners, these costs are an allowable deductible expense.
5. There are no restrictions on how income protection payments are used.
Many types of insurance have specific restrictions on how the payout is used.
For example, mortgage protection proceeds are typically assigned to the lending institution.
There are no such restrictions on income protection insurance payouts which can be used to pay the mortgage, pay household bills, fund specialist treatment, make loan repayments, pay for kids’ education, or continue savings.
6. Rehabilitation Support.
Many income protection policies offer additional and comprehensive support services, such as rehabilitation programs to allow you to return to work when you are fit to work and after fully recovering from injury or illness.
For example, Royal London income protection policies provide the Helping Hand service. This provides policy holders with one-on-one support from their own dedicated nurse from RedArc who can provide vital support for families trying to cope with the traumatic effect of long-term illness.
Likewise, Aviva provide access to all the services from the Aviva Care benefit, and which include:
o Digital GP
o Best Doctors Second Medical Opinion
o Family Care Mental Health Support
o Bereavement Support
7. Income protection provides Support for the self-employed
Self-employed persons do not have access to sick leave or disability payments provided by an employer and do not have automatic entitlement to state assistance when they become too ill to work.
Therefore, income protection becomes acutely crucial for self-employed persons and to financially support themselves, their family and their business during periods of long illness.
For self-employed persons there can literally be no other safety net should they become ill.
8. Long Term-Coverage provided by Income protection.
Income protection policies can provide coverage for a long period of time and up to 70 years of age from many providers in Ireland.
The length of the contract effects the price of the premium and most policy holders would seek coverage up until 60 years of age.
By then, most of the major financial commitments have been dealt with; the mortgage has been paid off and the kids have become financially independent.
As we can see from the list of benefits above, income protection is a vital pillar in financial planning for working people.
MOJO Finance provides advice, quotes and implementation services for income protection policies throughout Kildare and Ireland.
MOJO Finance do not charge a fee for this service and please feel free to request a confidential quote here.
Alternatively, please feel free to call MOJO Finance on (045) 938 206 or book a consultation here.