Let’s Talk Income Protection by Miriam McManus QFA
When life is going well, it’s easy to take money for granted. You use your earned income to pay the bills which lets you take care of your family, enjoy your home, car, hobbies, and holidays. The prospect of becoming ill at some point in the future and being unable to work is extremely daunting. But life can be unpredictable and often throws curve balls in our direction. Your income is essential to your quality of life. But what if you were to have an accident or long-term illness that prevents you from earning a living? That’s where income protection comes in. It gives you financial protection in the event that you are unable to work due to accident, injury or sickness. It’s different to health insurance – it’s insurance for daily living.
When illness or injury leaves you unable to work, income protection gives you financial security. It means you can keep on top of the bills, mortgage payments, car loans, food bills, rent and more.
Similar to Critical Illness cover, the need for income protection insurance depends entirely on your personal circumstances. If you are self-employed, for example, your income could stop immediately if you become seriously ill, as you may not be entitled to social welfare disability benefits or sick pay from an employer. In those circumstances, this type of policy could provide an invaluable financial safety net.
I can’t stress enough the importance of understanding that if you can’t work due to a medically recognised illness, your policy will pay you a replacement income. It’s easy to think that “it won’t happen to me”, but below I have
highlighted a number of statistics that you may find surprising. Illness or injury can happen at any time.
• Every 3 minutes in Ireland someone gets a cancer
diagnosis.
• By 2020, 1 in 2 people will develop cancer during their
lifetime.
• The number of Irish people affected by heart failure is set
to dramatically increase over the next 10 years.
• Heart disease is the cause of 1 in 3 deaths and 1 in 5
premature deaths.
• 1 in 4 people in Ireland will experience some mental
health problems in their lifetime.
Sources: National Cancer Registry of Ireland, Irish Heart Foundation and Mental
Health Ireland.
Tax Relief
Unlike a critical illness policy, which pays out a lump-sum in the event of a major illness you can get tax relief on your premiums at your marginal (highest) rate of tax, up to a yearly limit of 10% of your total income. This can make premiums more affordable, but remember your benefit will be taxable if you make a claim. If you are a member of a group scheme, your employer usually takes your premiums from your salary before tax. If you have an individual policy, your insurance company will give you a statement showing the premiums paid.
To claim your tax relief, you include this information with your tax return. So, for example, a 30-year-old male civilengineer who is paying €56.51 a month for cover of €25,000 (50% of income), should only be paying €33.90 a month, once tax relief is factored in.
The maximum benefit allowable is usually 75% of your salary, less any other payments you are entitled to when out of work, such as social welfare entitlements and sick pay. The first benefit payment is made once a set period of either 13, 26 or 52 weeks - known as a “deferred period” - is over. You may not be able to afford gold plated cover right now but if you can afford some cover, start small and put something in place, you’ll be surprised how affordable income protection can be. Don’t forget you get full tax relief on your premiums.
If you would like to have a chat about
Income Protection or any other financial
product please don’t hesitate to contact
me on
(086) 812 2347 or
(01) 849 8989 or
Email miriam@wporeilly.ie