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Income Protection

Income ProtectionHave you ever thought about how reliant you are on your salary? For most people, their entire lifestyle is reliant on them earning an income; paying the bills, eating out, holidays, savings, pension savings. All of these come from being able to go to work every day and earn money.

What if you go into an accident or got sick and couldn’t go to work for 5 years? How would that impact on your life?

Employee’s are eligible for State disability benefit of €188 a week if they are unable to work. Company directors and the self-employed get no such financial assistance.

So what is the solution? You have 3 options:

  1. Do nothing
    Hope that you are never get sick or in an accident that keeps you out of work for too long. Remember, anyone can be in an accident at any time and it doesn’t have to be your fault.
  2. Self-insure
    Calculate how much money you will need to provide yourself with an income for 5-10 years, save that amount and put it away. How long will it take you to save that amount? What if you can’t work for longer, what will you do when your money runs out?
  3. Insure your income
    Pass the risk to an insurance company , take out income protection and pay them a premium for taking on the risk of your not being able to work due to an accident or illness.

Options 1 and 2 carry a lot of risk and isn’t a good use of your money. Under option 3, you can insure up to 75% of your income. You can get tax relief on the premiums paid to an income protection plan, reducing the real cost to you.

At the outset, you chose how long you have to be absent from work before the protection policy starts paying you. It can start paying after 4, 8, 13, 26 or 52 weeks absence from work. The earlier it pays out, the more expensive the premium is.

Once you have claimed, the insurance company will pay you a replacement salary until you either return to work or reach the retirement age that you chose when you took out the insurance. The salary paid from an income protection plan is taxed under PAYE as if you were an employee of the insurer. Unlike a lot of other insurance products, if you make a claim, your policy will continue at not extra cost to you, meaning if you have to claim again in the future, your policy will still pay out.

You should also read some of our recent articles: What is Income Protection?Income Protection’s Terms and Conditions