Public Sector Salary Protection
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WHAT IS SALARY PROTECTION?
Salary protection (also known as Income Protection) is an insurance policy that pays a monthly replacement salary/income to policyholders who are unable to work due to illness or injury.
The replacement income starts paying out after a certain period of time. This is called the deferred period. This is usually 26 weeks for public servants when their sick pay entitlements cease.
An income/salary/sum of money is chosen by the policyholder which can range from a minimum €10,000 per annum (minimum) to a maximum of 75% of salary.
This Annual income is insured from the start date of the policy to a chosen term (usually the policyholder’s retirement age).
When off work, this sum of money is paid on a monthly basis until you either return to work or reach the chosen term of the policy (usually the 60th/65th birthday of the policyholder).
One of the main benefits of Salary protection is that all monthly premiums qualify for tax relief/tax rebate.
HOW DO YOU CORRECTLY QUOTE FOR SALARY PROTECTION?
You are required to choose the following:
- A sum of money to insure (min €10,000/max 75% of salary)
- The term you wish to be covered for (usually your 60th/65th birthday)
- The number of weeks that you need to be off work before the policy starts paying out (usually 26 weeks)
- Whether or not you smoke (30% price increase for smokers)
- State your Occupation (different pricing for different occupations)
please note:
The decisions made/answers given to the points mentioned above will have a direct correlation with the premiums of the policy. For example, some individuals might want to cover themselves for the maximum of 75% of their salary payable after 26 weeks when off work and payable/covered until they retire at 65 while others might only wish to insure themselves for enough funds to pay their monthly mortgage repayments and monthly bills until their mortgage is paid off at 60. Another factor that affects the premium is the occupation of the applicant. Some occupations due to the nature of their work, for example Construction workers, are more expensive than Office/Admin workers, etc. Occupations are rated from Class 1/2/3/4 with 4 being the most expensive. Some occupations are actually uninsurable/declined altogether (Firemen/Guards/Paramedics etc.) Please note that occupational classes can differ between the various Insurance companies/providers.
For example, School Principals/Vice Principals/Nurse Managers/Doctors can be classed differently with certain insurance companies. One provider’s quoted premium can differ significantly from another due to how these underwriting departments categorise a particular occupation. It’s important to understand these differentiations before choosing a provider/comparing quotations for your salary protection policy.
Public Sector Salary Protection
WHY IS SALARY PROTECTION IMPORTANT FOR PUBLIC SERVANTS
The biggest risk to most public servants financial security is the risk of them becoming ill or unable to work and earn an income.
Why? The benefits and entitlement of public sector superannuation scheme automatically covers all public servants for:
- Their retirement as it pays a lump sum and a pension on retirement.
- Their untimely death with the death-in-service benefit (1.5 to 2 times final salary on death) and 50% of pension entitlement payable to the surviving spouse.
Although all public servants have sick pay entitlements, the majority of these benefits run out after 12 months.
What would happen if you got sick at a relatively young age and were unable to work for the rest of your life? Who would pay for your lifestyle/your bills/your mortgage???
This is why income protection is an integral part of most public servants’ financial planning and up to 80% have this cover. Your income is your most important asset? You insure assets your car/house etc every year…
Why not insure the asset that pays the premiums for all other assets/liabilities as well as your lifestyle??
It is always recommended that all public sector employees take out a Salary Protection policy that coincides with the sick pay entitlements mentioned above.
This will ensure that your income is protected in the unfortunate event of you getting diagnosed with an illness or injury that prohibits you from earning an income for a long-term period.
WHEN IS SALARY PROTECTION MOST IMPORTANT?
Salary Protection is most important when you are young. If you are unable to work for a long-term period or are diagnosed with a serious illness at a relatively young age, your ‘Ill Health Early retirement pension’ entitlement will be very too small to live off for the rest of your life. In this situation, Salary Protection will ensure that you get up to 75% of your salary until your 60th/65th birthday or whichever age you choose. It will allow you to be able to pay your bills and have a decent standard of living, even though you may not be fit enough to work and earn a living.
other features and benefits
What Do I Need to Consider When Buying Insurance?
- The policy is owned by you and not part of a group scheme
- The policy also pays an additional hospital Cash payment if you are required to stay overnight in the hospital
- Back-to-work rehabilitation programs (including physio) available for all policyholders
- Free complimentary counseling sessions for the applicant and their families are available
- The premiums are guaranteed and do not increase for the term of the policy
- There is no obligation to be a member of any trade union
- A very high percentage of payout on genuine claims
- You can change jobs throughout your career and keep this policy
WHAT ILLNESSES SALARY PROTECTION COVER?
Salary Protection contrasts significantly with any other type of cover when comparing the conditions that the policyholder can claim. For example, a serious illness policy will only pay out on a serious illness (Cancer/Cardiac arrest/MS/Parkinson’s, etc). It may in fact only pay out partially for certain cancers/heart conditions.
Salary Protection pays out on all illnesses and injuries. It covers stress-related illnesses and any injuries that restrict the policyholder from working (knee/back injury, injuries sustained in an accident that are not classed as a ‘serious illness’, etc).
It basically pays out any condition that your doctor will confirm in writing that you are unfit/unable to perform the day-to-day tasks associated with your job.
PREMIUMS AND TAX RELIEF
A huge benefit of income protection, as opposed to any other protection policies (life cover/Personal Accident cover/Serious illness cover), is that the monthly premiums qualify for tax relief. So for example, if you are earning over €36,800 per year you are usually paying an income tax of 40%. In this situation, you would be due a tax rebate of 40% of the income protection premium. For example, if say the premium is €100, you would be due back €40 as a tax rebate each month.
HOW THE TAX RELIEF WORKS
The Gross premium is debited from your bank account each month. The tax rebate is added back to your take-home pay on your payslip on a monthly basis. Once the policy goes live, the relevant insurance provider sends a certificate to the revenue to prove that your policy is now live and this cert instructs them to alter your tax credits accordingly. When this is complete, you will receive the relevant tax rebate back in your tax home pay on a monthly basis. You will in effect notice an increase in your take-home pay by the rebate amount once the revenue alters your tax credits. Please note that it may take 6 weeks or so after your start date before you start receiving your rebate but all tax relief will be backdated and paid in full once your tax credits are adjusted, etc.
SURANCE COMPANIES PROVIDE INCOME PROTECTION FOR PUBLIC SERVANTS?
Most of the main insurance companies provide cover income protection cover for public servants (Aviva, Zurich, Irish Life, Royal London, New Ireland). We compare all provider’s income protection offer to public servants in relation to:
- Cheapest premium
- The price discounts available by each company at that particular time
- Additional other free benefits that each provider offer (eg, Best Doctor/Family Care and Helping Hand/Hospital Cash/Return to work rehabilitation, etc)
Once we compare all the above points, we will recommend the most suitable provider with the cheapest premiums for your income protection policy.
Get in touch with us
To schedule a call with one of our Qualified Financial Advisors.