Income Protection (also known as Permanent Health Insurance or PHI) provides you with a replacement income in the event that you are unable to work due to any accident, illness or disability.
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.
There must be a loss of income in order for this type of benefit to become payable.
Statistics show that a 30 year old person is more likely to be off work due to an illness or injury for a long period, than to die before the age of 65. If you had to give up work due to illness or injury, how would you pay your regular bills? You may also have the additional burden of extra medical costs. Could you continue to pay these bills if you lost your regular income? If the answer is no, you need income protection.
It must be earned income so you cannot include rental income or dividends for example.
The maximum that you can cover yourself for is 75% of your income less any social welfare entitlements (currently circa € 10,000 per annum). Note that State Illness Benefit is not paid to self-employed people.
There are some limits which vary slightly across life companies; for example Friends First cover 75% of salary less social welfare entitlement. This is subject to an overall maximum of € 262,500.
The ‘deferred period’ is the time between when you are injured and when the policy will commence payment. You must be unable to work for a minimum of the deferred period before the benefit will become payable. Think about how long your savings would keep you going in order to help you decide on the appropriate deferred period for you. From an affordability perspective - the longer the deferred period, the lower the premium.
The actual deferred periods vary among the life companies but are 4, 8 , 13, 26 and 52 weeks.
A reviewable plan means that the premium is fixed only for a certain initial period. This means that the premium can be reviewed regularly by the provider after the plan has been put in place. The terms for implementing the review will be determined by the terms and conditions of the plan.
A guaranteed plan means that the premium payable will be guaranteed not to change throughout the term of the plan.
Your occupation is very important as some occupations will not be covered due to the nature of their work or may only be offered cover at an increased cost. 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. Typically the cost of your premium increases the higher the class you are in.
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, administration 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.
Typically most life companies have an automatic benefit on these type of policies which allows you to increase the cover on your policy by 20% of the original cover every three years without having to provide evidence of health. In addition you can also select the Indexation Option on your policy. This means that your benefit will increase ( the norm is by 3%) but your premium will also increase each year on your plan. This can help ensure that your benefit automatically stays in line with any salary increases and with inflation.
On the flip side if unfortunately your salary decreases and you want to adjust your income protection cover, you must notify ourselves or the relevant life company directly and your premiums will be adjusted to reflect the lower income cover provided.
Not wholly dissimilar to Indexation is Escalation. When you are putting your cover in place you can also choose to include escalation which means that in the event of a claim the benefit will increase annually. The annual increase will be determined by the provider and outlined in the plan terms and conditions.
There is tax relief available when you pay your premiums but it depends who has set up the policy i.e.
Personal Income Protection: An individual can choose to put income protection in place on a personal basis. They pay the premium and can get tax relief at the marginal rate of income tax up to 10% of their earnings. In the event of a claim, the provider will become the individual’s employer, deducting PAYE at source.
Company Income Protection: Employers can arrange to put income protection in place for their employees. The company covers the cost of the benefit for the individual, but can treat the payment of premium as an expense for tax purposes. In the event of a claim, the provider will pay the gross benefit to the employer for payment of income to the employee.
Serious illness cover pays a lump sum to you if you are diagnosed with any of the specified illnesses named in the plan. This lump sum can be used to pay off large loans, pay medical bills etc.
Income Protection provides you with a replacement income in the event that you are unable to work due to any accident or illness. With this policy you are covered until you can return to work or until retirement age if you unable to return to work.
|Serious Illness Cover||Income Protection||Which qualifies for Tax Relief?||There is no tax relief available on Serious Illness premiums||You can claim tax relief at your marginal rate on your Income Protection premiums.|
|What about continuity of cover?||Once you secure Serious Illness cover- that cover lasts for the duration of the policy or until you make a claim.A claim will make it very difficult to replace that cover in the future.||Income Protection benefit will continue even if you suffer an illness which triggers a claim. Your benefit will continue to be paid to you from the end of your deferred period until you no longer satisfy your definition of disability, you recover, your policy ends, you retire or you die (whichever comes first).|
|Is it difficult to get cover?||More people tend to qualify for this type of cover as their occupation is not a factor.||It can be difficult for certain occupations to get Income Protection cover.|