What is Income Protection?
Income protection is a simple, tax efficient and inexpensive plan that provides you with a source of income if you are unfortunate enough to be out of work because of an illness and suffer a loss of earnings as a result of any disability, any injury or any accident.
Income Protection – Income Security for Your Peace Of Mind:
It makes sense to insure your home, your car and your family against the unexpected. But what about your income? What if you were to suffer an accident or long-term illness that prevented you from earning a living? Income protection is designed to provide you with an alternative income if you suffer an illness or injury which prevents you from working. It is different from health insurance – it is insurance for daily living. When illness or an injury leaves you unable to work you need the financial security of a product that keeps you on top of the bills that matter: mortgage payments, car loans, food bills, rent and more. After all, your income pays for everything. Income protection helps take care of your financial needs while you are focusing on recovery at a time when money worries should be the last thing on your mind. Take a moment to think about how you would pay these normal household bills without an income.
Important Terms of Income Protection:
Deferred Period: This is the amount of time you have to be off work continuously, due to illness or injury, before your income protection benefit starts being paid. This is called the “Deferred Period”. You can choose a deferred period of 4,8,13,26 or 52 weeks. You can match this time to suit your personal circumstances, for example: it could be based on your employer’s sick pay rules, so you would choose your deferred period to match the amount of time your employer will provide sick pay, so as soon as your employer’s sick pay ends your income protection benefit would start. Or it could be driven by cost. The length of the deferred period you choose will impact the cost of your policy. The longer the deferred period, the lower your monthly premium. For additional flexibility, you can choose two deferred periods within your policy. For example: you can choose to provide a certain amount of income protection benefit after shorter deferred period and a higher income protection benefit amount after a longer deferred period. This may be useful in order to best match employer sick pay scheme or to help reduce the overall cost of cover.
Tax Relief: You can claim tax relief on all premiums you pay at your marginal rate of tax, if you currently pay income tax. This means that if you are taxed at the higher rate of 40%, on a €100 premium you will get €40 tax relief – so the net cost to you is only €60. The tax relief has to be claimed from Revenue and we can send the certificate directly to them for you.
Waiver of Premiums: While you are in receipt of an income protection benefit payment, you will not have to pay the premium related to that benefit. This is called a waiver of premiums. For example: Mary has a car accident and goes on sick leave from work. Following the selected deferred period, she starts to receive her income protection benefit and she does not need to pay any monthly premium payments. Once well enough to return to work in the future, her cover can resume, along with her premiums, until Mary reaches her selected expiry age.
Indexation: Inflation impacts the general cost of living, as it means the price of goods and services increase over time. By adding indexation to your policy, your cover increases by 3% each year, in return for a 3.5% increase in your premiums each year (this may differ between insurance companies). In the event of a valid claim, your income protection benefit will continue to increase by 3% each year while the claim is being paid. This helps offset the negative effects of inflation.
Occupation Class: The purpose of income protection is to provide you with an income if you are unable to work because of an illness or injury. Your ability to work will be assessed and based on your normal job, whether you can carry out the essential duties it requires. In insurance terms, this is called own occupation cover, because of this, the availability and cost of income protection cover is directly related to your job or occupation. Some occupations are considered to be a higher risk than others. For example: an accountant will generally pay a lower premium for the same level of cover compared to a builder. This is simply, because the builder has a higher chance of suffering an accident at work compared to an accountant. Due to the degree of occupational risk involved, there are some occupations that will not be accepted for income protection cover. There are four different occupational classes for cover. People in the lowest risk occupations pay the lowest premiums while those in higher risk occupations pay a higher premium. This is based on a standard risk assessment across occupations. Although there are some exceptions for certain occupations, the four broad categories available are:
Occupational Class 1 – Professional, managerial occupations, administration, clerical jobs, for example; accountants, home makers, and managers.
Occupational Class 2 – Occupations involving occasional manual work, for example; agents, guides, chemists, barbers.
Occupational Class 3 – Skilled manual occupations, for example; nurses, teachers, chefs, cleaners, factory workers, painters, drivers, paramedics, bartenders.
Occupational Class 4 – Partly skilled and unskilled manual occupations, for example; construction site workers, fire fighters, guards.
Main Benefits of Having Your Income Protected:
You receive an income if you are unable to work due to accident or illness.
It is a way of ensuring you can pay your bills when unable to work long term.
It can cover up to a maximum of 75% of your income to your normal retirement age.
You get tax relief on the monthly premiums at your marginal rate (20% or 40%).
Some of the Income Protection providers offer some additional benefits as follows:
This benefit pays you 1/365th of your annual income protection benefit for every day that you are in hospital. This benefit is payable even though you are not on claim with your policy, your deferred period is irrelevant.
Access to Best Doctors:
This benefit provides an independent and confidential medical second option service. If you develop a serious or worrying medical condition for which you have been seen by a medical specialist and you have questions about your diagnosis or treatment, at no additional cost to you, Best Doctors can perform an in depth assessment of your diagnosis and treatment options and answer any questions you may have about your condition. It’s not just for serious conditions such as cancer, heart attack etc the service is available for any medical condition considered to be of critical, chronic or degenerative nature such as sports injuries, severe migraines or back pain. The service is available not just to you (the insured) but also your spouse/partner, your children up to the age of 18 (or 23 if in full time education), your parents and your partner’s/spouse’s parents.
Helping Hand Facility:
This benefit give one to one personal support from your own Nurse Adviser from Red Arc who can help you and your family cope with the devastating effects that illness or bereavement can have. It is important to note that the benefits below apply to all of your family members, (you, your spouse and your children).
Helping Hand provides access to:
- Bereavement Counsellors
- Speech and language therapists
- Face to face second medical opinions
- Complementary therapies
*For better explanation on Helping hand facility, please watch this video.