Let’s talk about something that a lot of people don’t really think about until it’s too late: income protection insurance. Specifically, the “deferred period” of that insurance. It’s not the most exciting topic but trust me—it’s something worth understanding because it can make a big difference when life throws you a curveball, like illness or injury that keeps you from working.
What is the deferred period in income protection?
So, what is this deferred period? Think of it like a waiting period. In simple terms, it’s the amount of time you have to be unable to work before your income protection kicks in and starts paying you. During this time, you won’t be getting any money from the policy, even if you’re not able to work.
For example, let’s say you take out income protection with a deferred period of three months. If you suddenly get sick or have an accident that stops you from working, you won’t receive any payments for those first three months. After that, if you’re still unable to work, the policy starts paying out to help cover your living expenses.
How does the deferred period in income protection effect the cost of monthly premiums?
Now, here’s where it gets important: The length of the deferred period you choose can have a big impact on your finances when you’re out of work—and even on how much your insurance premiums cost. The longer the deferred period, the lower your monthly premiums will be, because you’re taking on more of the financial burden before the insurer steps in. If you choose a shorter deferred period, say four weeks instead of three months, your premiums will be higher since the insurer has to start paying you sooner if something goes wrong.
So, how do you choose the right deferred period?
A lot of it depends on your personal situation and how much of a financial cushion you have. For instance, if you’ve got decent savings or access to other financial support, you might be able to manage a longer deferred period, like three or six months. This would keep your monthly premium lower, and you’d rely on your savings to cover you during that waiting time.
But if you’re someone who lives from to month to month, with little to no savings, a shorter deferred period might be the better option. Sure, it means you’ll be paying a bit more in premiums every month, but it also means you won’t be left scrambling if you suddenly lose your income due to illness or injury. Imagine trying to go six months without a salary —that’s not something many people can afford to do!
Your employers sick pay policy should be considered when choosing the deferred period in an income protection policy.
Another thing to consider is your employer’s sick pay policy. Some jobs offer extended sick pay, which might cover you for the first few months. If that’s the case, you might not need income protection to kick in until later, meaning a longer deferred period could work for you. On the other hand, if your employer offers little to no sick pay, you’ll want your income protection to start as soon as possible.
It’s also worth thinking about government benefits. Depending on where you live, you might be entitled to state benefits if you’re unable to work. However, these are often pretty limited and might not cover all your expenses, especially if you have rent or a mortgage, utilities, and other bills piling up.
Conclusion
Choosing the right deferred period is really about balancing what you can afford with what you’re comfortable risking. If you’re okay with covering a few months of expenses on your own, a longer deferred period might be fine. But if the thought of going two or three months without income terrifies you, a shorter period is probably the way to go, even if it costs more in premiums.
At the end of the day, income protection is about giving you peace of mind. No one wants to think about getting sick or injured, but these things happen. The deferred period is just one part of the equation that you need to think about carefully. It’s about making sure that if the worst does happen, you’re not left stressed out about money on top of everything else.
So, when you’re looking at income protection, don’t just focus on the monthly cost of the policy. Think about what would actually happen if you couldn’t work for an extended period. How long could you realistically go without income? The answer to that question will help guide you to the right deferred period and the right policy for your situation.
MOJO Finance and the protectyourincome.ie information website advises that the average income protection claim in Ireland lasts more than 6 years and that income protection should be put in place to mitigate the effect of medium to long term illness – not short-term illness.
Sole traders are particularly exposed to the financial risk because by long term illness because sole traders are not eligible to receive state illness benefit. Therefore, MOJO Finance strongly advises all sole traders to avail of the available tax reliefs and put income protection in place.
Ultimately, putting income protection in place and choosing the most suitable deferred period is about striking a balance between adequate protection and long-term affordability.
For more information, please send an email to hello@mojofinance.ie or visit www.protectyourincome.ie to request an income protection quote.