Have you thought about what would happen to your lifestyle if an injury or illness were to prevent you from working and earning an income? How would you pay for your mortgage, energy bills, personal or car loans, education and the upkeep of your home?
If the worst was to happen, you might think that you could rely on your employer to provide you with an income while you are sick or injured and unable to work. However, research shows that less than 15% of workers in Irish companies would receive sick pay from their employers for more than six months*, while those who are self-employed would receive no sick pay at all. This means that 85% of private sector employees would be fully reliant on the State Illness Benefit if ill or injured. In 2009, this would entitle them to just €10,624 per year for a single person. For those who are self-employed, they are not eligible for even this benefit.
Protection and peace of mind
Fortunately, there is an answer. It’s called Income Protection, and it ensures that if an illness or injury prevents you from working, then your lifestyle can be protected. It covers you for any illness or injury which prevents you from working. Income Protection is a very straightforward way of ensuring that your most pressing financial commitments are met and offers you complete peace of mind. With Income Protection you pay a monthly premium which is based on your occupation, your health, your income and the level of financial protection you require. You can protect up to 75% of your income, up to a limit of €175,000 per annum**, less the applicable Social Welfare entitlements. You decide what age you want your policy to finish at, with a choice of ceasing ages available – 55, 60, or 65.
Tailored to your needs
Because everyone’s lifestyle is different, you can tailor your Income Protection policy to suit your individual circumstances and needs. So, for instance, to simplify your financial planning under the Guaranteed Premiums option, you can ensure that your monthly premiums will not change during the lifetime of your policy – so long as your level of benefits does not change. You can also help to ensure that your Income Protection benefit keeps pace with inflation and your expected salary increases by choosing the Indexation option. Under this option, your premium and benefit will increase by 3% every year.
Another option is the Guaranteed Increase option, where you are offered 20% of your original benefit every three years for an additional premium, without the need to review your medical history. You will be offered this five times over the life of your policy, allowing you to increase your benefits by up to 100% of the original sum assured.
Income Protection has a deferred period, which is the time between making a claim following illness or injury and receiving the benefit. If you are being treated in hospital during this deferred period you can also receive benefits through hospital cash cover. Another important point worth noting is that after making a successful claim there is no need for you to pay any premiums until your period of incapacity ends and you return to work.
Because the Government recognises the importance of planning for the possibility that illness or injury would prevent you earning an income, the Income Protection premiums you pay are eligible for tax relief at your marginal rate, up to a limit of 10% of your earnings. You can claim this tax relief at your local Revenue office.
* Source: Lansdowne Market Research, April 2007
** Subject to the following formula: 75% of the first €125,000 of earned income (less BIK’s), plus 33% of the balance, to a maximum of €175,000 p.a., less Social Welfare entitlements.