19th July 2013
WHAT IS INCOME PROTECTION? OR PERMANENT HEALTH INSURANCE (PHI)? AND WHY WOULD I CHOOSE IT?
Income Protection provides you with a replacement income in the event that you are unable to work due to any accident or illness. The payment will commence once you have been disabled for a set period of time ( known as the ‘deferred period’). These payments will continue until you have recovered and are fit to return to work, or until your chosen retirement age if you are unable to go back to work.
It is very suitable for ………….
- Those in full-time work be they employed or self employed.
- Certain occupations such as professionals, managerial staff, administrative and clerical workers.
- Those with a relatively clean bill of health
Important Issues to Note with Regard to Income Protection
How much Income is Protected?
If your policy happens to be activated the maximum you will be paid is 75% of your annual salary less the State Illness benefit which is currently c.€10,000. Note that State Illness Benefit is not paid to self-employed people and therefore is not deducted from the maximum allowable benefit.
What Income counts for Income Protection?
It must be earned income so you cannot include for example rental income or dividends.
How much Income can I Protect?
It varies slightly across life companies. Typically up to 75% of the first €125,000 of salary plus 33% of the balance of your income over that amount less the State Illness benefit. This is subject to an overall maximum of c.€175,000- €200,000.
What are the relevant deferred periods for Income Protection?
The normal deferred periods are 4, 8, 13, 26 and 52 weeks. Not all companies offer these periods with the norm being 13, 26 and 52 weeks.
How does occupation affect Income Protection?
Your occupation is very important as some occupations will not be covered due to the nature of their work. Below is a table that will give you a good idea of what class your occupation falls into but it is not the definitive guide as there are some small differences between the various life companies.
| Class 1 | White- collar occupations: no appreciable accident or health risk. These occupations will usually be office based. Examples include accountants, GP, IT consultant, solicitor etc.
| Class 2 | Mainly white – collar and predominantly administrative. Driving may be involved. Examples include quantity surveyor, sales rep etc.
| Class 3 | Skilled occupations, which may involve light manual duties but heavy lifting is rare .Examples include interior painters, foremen, electrical engineers and domestic electricians, dentists etc.
| Class 4 | Skilled tradespersons, working on construction sites using light power tools. Examples include carpenters and plumbers, teachers and nurses.
Who is eligible for Income Protection?
You must be in full-time paid work as a self-employed person, or as an employee or company director to qualify for Income Protection and to receive benefits in the event of a claim.
Is there any Tax Relief with Income Protection?
The premiums you pay attract tax relief at your marginal rate.
How many times can you claim on an Income Protection policy?
You can submit claims on your policy as many times as you require benefits, right up to the end of the policy term.
What happens if my salary increases?
Some life assurers such as Friends First have an automatic benefit on their policies which allows you to increase the cover on your policy by a certain amount ( 20% of the original cover every three years in the case of Friends First) without having to provide evidence of health.
You can also select the Indexation Option on your policy. This means that your benefit will increase by a certain percentage each year and your premiums will also increase as well each year on your plan. This can help ensure that your benefit automatically stays in line with any salary increases and with inflation.
You can also contact your life company to increase your benefit as your salary changes. This type of increase will however be subject to evidence of health and your premium will change.
Want to know know find out more about our Income Protection Policies? Why not get a quote today?