More About Income Protection
Let us give you the information you need to make an educated approach to Income Protection
What is Income Protection insurance?
Income protection insurance is an insurance policy that provides you with a regular income if you’re unable to work due to any illness or injury. It covers up to 75% of your salary, until you’re able to return to work or reach your retirement age whichever comes first. This helps you manage living expenses and financial obligations while you’re not earning your usual income. MOJO Finance will assist and guide with claims relating to policies that have been arranged through MOJO Finance.
Benefits of Income Protection
Consistent stream of Income:
The primary benefit of the income protection insurance is that it provides up to 75% of your regular income if you are unable to work due to illness, injury, or disability. This income can help cover crucial living costs, such as your mortgage or rent, utilities, children’s education, loans and groceries.
Security:
Income protection ensures that you and your family maintains financial stability when you are unable to earn your usual income. This can prevent you from using your hard-earned savings, going into debt to cover your expenses or even missing mortgage or rent repayments.
Flexibility in Coverage:
With expert advice you can protect your income with a policy that balances adequate protection and long-term affordability. You can take your income protection from one employment to the next and you increase your benefits to keep in line with inflation.
Long-term Support:
Income protection insurance provides cover until you’re able to return back to work, or even up to your retirement age. This long-term support is vitally important, especially if you suffer from a severe illness or injury that prevents you from working for an extended period.
Peace of Mind:
Knowing that your is income is protected can reduce stress and anxiety allowing you to focus on your recovery rather than worrying about financial pressures. Some income protection policies will also provide a free and additional Hospital Cash benefit to supplement your cover.
Income Protection Tax Benefits:
The Irish government is incentivising you to protect your income and protect you family. Here, tax relief of up to 40% is provided on monthly premiums and you have up to four years to claim this back,
For companies income protection is a revenue approved tax deductible expense.
Who is income protection for?
Income protection for Employee
Losing the ability to earn income is a big concern for employees in Ireland. Your income is most likely your most important asset. For example, an employee with €50,000 annual salary would expect to earn at least €1m in salary over the next 20 years.
- Your income funds everything and should be protected at all costs. An employee’s income pays for everything from mortgage repayments, rent, food, energy, kid’s education, cars, entertainment, and holidays.
- If you are lucky enough, your employer may provide sick pay for a short period of time and even up to 3 or 6 months in some cases.
- However, the average income protection claim in Ireland lasts over 6 years and annual average household bills and expenses are close to €40,000.
- Income Protection Insurance will provide a monthly replacement salary if they become unable to work due to illness, injury, or disability.
- An eligible PAYE employee, with no serious medical issues can insure up to 75% of salary minus state illness benefit if they are eligible.
- The Irish government is incentivising employees to protect and insure their income by providing tax relief on monthly premiums at your marginal rate.
Income protection for Company director
Limited company directors are eligible to protect their income either through personal income protection or executive income protection.
- Limited company directors will most commonly protect their income via an executive income protection policy. Here, the policy is designed to protect both the company and the director.
- It is highly recommended that limited company directors use their company in this way to protect their income. Monthly premiums on executive income protection policies are paid by the limited company and are a revenue approved tax-deductible expense.
- With executive income protection policies, a limited company directors can insure up to 75% of salary.
- Should a claim arise, the income protection provider will pay the benefit gross to the company.
- Executive income protection policies are typically cheaper for males and more expensive for females. This is unlike personal income protection policies where the cost of monthly premiums is the same for both males and females.
- Executive income protection also offers limited company directors the option to insure pension contributions.
Income protection for Self-Employed Sole Trader
Income protection insurance is absolutely essential for self-employed sole traders. If you are a self employed sole trader and become unable to work and earn income, income protection will provide you with a weekly or monthly sum to replace your loss of earnings.
- A self-employed sole trader can insure up to 75% of their profits and this will at least prevent a health crisis being compounded by a financial crises. When applying for income protection self-employed sole traders do not need to provide any proof of earnings.
- Self-employed sole traders are particularly at risk as unlike PAYE workers, they are not entitled to the state illness benefit.
- Self-employed sole traders will receive tax relief at their marginal rate on income protection monthly premiums. Here the Irish government is effectively helping self-employed sole traders to manage the financial risk caused by medium to long term illness, injury or disability.
- The cost of income protection for self-employed sole traders will depend on how physically risky their employment type is. For example, income protection insurance for a builder will cost more than it would for an accountant.
- Self-employed sole traders can insure their income up to when they expect to retire. They can also choose to increase their income protection insurance by typically up to 20% every 3 years.
Income protection insurance can also be indexed to keep the annual benefit roughly in line with inflation.
What happens if I get laid off?
If you are laid off or made redundant for reasons unrelated to illness, injury, or disability, income protection insurance does not provide coverage. Income protection insurance is specifically designed to replace a portion of your income if you are unable to work due to health-related issues, not because of unemployment or redundancy.
Here’s what typically happens in such a situation:
- No Payout for Unemployment: Since income protection policies are not designed to cover unemployment, you would not receive any benefits if you were laid off.
- Policy Continuation: You may keep your income protection policy active if you can continue paying the premiums. This can be important because if you secure a new job, the policy remains in place to protect you against future health-related work absences.
- New Employment: When you find a new job, it’s crucial to update your policy details, such as your income level and occupation. The new job might have different risk levels, which could affect your premiums or the terms of the coverage.
Income protection is designed to protect you from a loss of income due to health issues, not unemployment due to lay-offs or redundancies. For unemployment risks, other types of insurance or financial products, like redundancy insurance, might be more appropriate.
Won’t my state illness benefit be enough?
State illness benefit may provide some financial support if you are unable to work due to illness. However, there are often limitations and not everyone is eligible to receive state illness benefit. State benefit offers only a basic amount up to €232.00 per week which is most likely significantly lower than your regular income and not sufficient to cover ongoing bills and expenses.
If you are lucky enough to be eligible to receive state illness benefit, there are no guarantees that you will receive it indefinitely. If you’re unable to work for a long time, then you and your family will need the additional support provided by your income protection policy.
Income protection insurance provides a more comprehensive safety net, replacing a significant portion of your income (usually up to 75%) for a longer period, until you can return to work or reach retirement age. This ensures you get to cover most of your bills and outgoings while you focus on recovery.
How much does income protection cost?
The cost of income protection insurance varies based on several key factors:
- Age: Premiums rise with age due to increased health risks.
- Occupation: High-risk jobs result in higher premiums.
- Income Level: Higher coverage amounts lead to higher premiums.
- Health and Medical History: Existing conditions or past illnesses increase costs.
- Lifestyle: Risky behaviours like smoking raise premiums.
- Policy Details: The deferred period, benefit period, and coverage amount impact the overall cost.
A Qualified financial advisor can provide bespoke quotes based on your personal circumstances, helping you compare different policies, and find a plan that suits your needs.
How much replacement income will I receive?
Income protection policies generally provide financial support if you’re unable to work due to illness or injury. The amount you will receive depends on several key factors:
Your Policy Terms:
• Percentage of Income: policy can cover up to 75% of your gross monthly income.
• Waiting Period: You can choose a 4, 8, 13, 26 or 52-week deferred period when taking the policy.
• Benefit Period: The length of time you’ll receive payments. You can tailor your policy to end at any age and up to your retirement.
Policy Conditions:
• Some policies adjust payouts due to other benefits (like government illness benefits payments) you might receive.
If you would like more detailed advice on any specific aspect of your income protection insurance policy talk to one of our qualified financial advisors here below.
Is the income protection Tax decutable?
In Ireland, the government incentives employees, sole traders and directors to protect their income from the financial consequences of illness, injury or disability.
For personal income protection, monthly premiums receive tax relief at the policy holder’s marginal rate. In short, you’ll pay less money for your premium because of tax relief.
For example, gross monthly premiums of €80 will receive €32 relief which makes the net cost €48 per month.
Tax relief can be claimed in several different ways and can be claimed for up to 4 previous years. Some policy holders choose to claim the tax relief on income protection relief premiums every year whilst others choose to claim every 4 years.
Typically, the tax relief on your salary protection isn’t given at source so you’ll need to pay the full amount and claim the money back yourself as a tax refund in your annual return.
Here, claiming tax relief on income protection policy premiums is simple:
- Register on MyAccount.
- Select “Manage Your Tax” under PAYE services
- Select “Claim Tax Credits”
- Select “Income Continuance”
- Input the name of insurer and the estimated amount to be paid *note that the amount to be paid is the monthly premium by the amount of months for which you are claiming tax relief.
- The select ‘Next’
- Go back into MyAccount’ to upload the tax cert. You can ask your broker for an electronic version of the tax cert.
Alternatively, and if you work for a small company, you can agree with your employer that monthly premiums on your income protection be taken from your monthly gross salary. Here tax relief is provided at source.
For executive income protection policies paid by the company for an employee or a director for example, tax relief works differently. Here, monthly premiums on income protection are a revenue approved expense which are tax deductible against company profits. There is also no benefit-in-kind for the employee or director.
How do i claim?
MOJO Finance will assist and guide with claims relating to policies that have been arranged through MOJO Finance. To claim on your income protection plan, follow these general steps:
Notify Your Insurer:
Contact your insurer as soon as you are unable to work due to illness or injury. Most insurers have particular deadlines for reporting claims.
Complete Claim Forms:
Your insurer will send you some claim forms to fill out. This could include personal, medical, or financial information.
Provide Medical Evidence:
You will need to provide medical proof from your doctor or specialist proving your illness or injury and how it impacts your capacity to work.
Submit Financial Information:
To determine your benefit amount, you may be required to produce proof of income (for example, recent pay stubs or tax returns).
Wait for the Waiting Period:
Claims are usually paid after a waiting period, depending on your policy. When purchasing the coverage, you have the option of deferring it for 4, 8, 13, 26, or 52 weeks.
Keep in Touch with Your Insurer:
Maintain continuous contact with your insurer to follow up on your claim and supply any additional documents they may require.
Receive Payments:
Once approved, payments will start based on the terms of your policy. You may need to continue providing updates on your condition.
Am I eligible for income protection?
Take 30 seconds to answer a few questions and our MOJO Finance experts will reach out to advise and get you covered. All Quotes receive up to 15% broker discount.