What is Income Protection?
Income protection is insurance that provides financial support to individuals unable to work due to illness or injury. This type of coverage is designed to replace a portion of an individual’s income, helping them to cover their living expenses and maintain their living standard while they cannot work. For example, if you earn €50,000 and suddenly an illness or injury means you won’t be able to do your job for a couple of years, you are going to drop down to the State Illness Benefit of less than €11,000. An income protection policy could put a safety net at €37,500 (75% of your salary), meaning you wouldn’t drop below that amount.
Why Income protection is important?
1. Provide financial stability and peace of mind
One of the biggest reasons income protection is so important is that it can provide financial stability during a time of uncertainty. For example, if you become seriously ill or injured and cannot work, you may not have the means to pay your bills or provide for yourself and your family. Income protection can help alleviate this stress, providing you with a regular income so you can focus on your recovery without worrying about your financial situation.
2. Protect your savings
Another reason why income protection is important is that it can help to protect your savings and assets. If you are unable to work for an extended period of time, you may need to look at your savings to cover your living expenses. This can quickly exhaust your savings, leaving you vulnerable if you need to cover unexpected expenses or if your illness or injury lasts longer than expected. Income protection can help prevent this, providing you with a regular income so you don’t have to drain your savings.
How to apply for Income Protection?
Step 1
If you are interested in applying for income protection, the first step is to research the different types of policies available and compare the coverage and costs of each. Next, you need to find a policy that provides the level of coverage you need at a price you can afford.
Step 2
Once you have selected a policy, you have to fill out an application and provide some personal and medical information. The insurance company will use this information to determine your coverage eligibility and the premiums you will be required to pay.
Step 3
After your application approval, you must pay your premiums regularly to keep your policy active.
How does Income Protection work?
If you become incapable of working due to any illness or injury and meet the criteria outlined in your policy, you can begin to receive income protection benefits. These benefits are typically paid monthly and are designed to replace a portion of your income. The amount of your benefit will depend on the terms of your policy, but it is typically between 50% and 75% of your pre-disability income.
Let us explain this further, assuming your gross income is €60,000, and you want to insure 75% of your income. You should be eligible for €208 (€10,853 annually) in weekly state illness benefits. So when you are insuring 75% of your income, this will include your state illness benefit, and the pay-out from the insurance company.
So, in this case, €10,853 is illness benefits from the state, €34,147 would illness benefits from your insurer.
€10,853 + €34,147 = €45,000 (75% of €60,000). So you would look for cover of 34,147 per annum.
A very good incentive to get this policy in Ireland is provided by Revenue; they will offer tax relief on the premium. This means they increase your tax credits by 20 or 40 percent of the monthly premium, depending on your income level. In the above case the premium might be €50 per month, but you would get €20 extra tax credits each month, so the net (after tax relief) cost would only be €30 per month.
Can I claim Income Protection when I loose my job?
Unfortunately, No! It will not cover you in case of redundancy. Income protection only covers your inability to work due to illness, injury, and disability.
Our Advice
Income protection can provide valuable financial support during a time of need, helping you maintain your living standard and focus on your recovery. If you are interested in applying for income protection, be sure to research your options, fill out the application with the correct information, and pay your premiums on time to keep your policy active. You can also contact us as we provide the best market price and save you a lot of money in the long run.
