Find Out More About Income Protection
- Date: 2010-04-16 - Word Count: 597
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What is Income Protection?
Income Protection is a protection policy that will pay out a regular cash payment, replacing part of your lost income if you have a long-term illness or disability and you are unable to work. Income Protection is also sometimes referred to as Permanent Health Insurance, but it must be stressed that Income Protection is not the same as a private health-care plan. e.g. private health-care plans help pay for the costs of your treatment, they do not pay out any extra cash benefit. While it is the case that like a pension people put it on the long finger it is vital that one has some protection against loss of income. The recent global recession has made this point abundantly clear.
Do I Need Income Protection?
If you become seriously ill you may be entitled to social welfare payments, sick pay or a level of income under your employers pension plan. If income from these sources is sufficient for your needs then you may not need extra cover from an income protection policy. However, you may need this cover if:
-You are self-employed;
-You would get little or no sick pay from your employer; or
-You have no ill-health pension protection.
How Much Would I receive from my Protection Policy?
You get a proportion of your earnings (75% up to €80,000), less any other social welfare payments you receive when you are out of work (such as sick pay or social welfare disability benefit).
Example: Joe is an employee earning €40,000 a year. He has an income protection policy that will pay up to a maximum of 75% of the amount he was earning
before he became unable to work, less any other income he is receiving.
Joe has recently become unable to work because of illness. He puts in a claim to his insurance company and starts to receive his payment after 26 weeks, which is his deferred period. Joe must tell his insurance company what other benefits he is getting while he is out of work. These are a social welfare disability benefit of €800 a month.
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Example: Monthly Benefit for Joe as an employee
Insured benefit € a month
75% x €40,000 a year = €30,000 €2,500
Less social welfare a month - 800 -€800
Maximum benefit a month from the insurer €1,700
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Who Can Buy Income Protection?
You must be in full-time paid work or be self-employed to take out and continue to have cover.
What Tax Benefits Do I Receive on Income Protection Premiums?
Tax Relief is available on your Premiums at your marginal rate of tax.
When Would I Receive The Benefit?
You get your benefit only after you have been unable to work at your normal job and are not working at any other job for a set period. This period is called the deferred period. You can choose from 13 weeks, 26 weeks or 52 weeks. If you choose 13 weeks it costs more than for 26 or 52 weeks because your benefit starts sooner.
How Long Would I Continue to Receive Income Protection Benefit?
Your insurer will usually stop paying your benefit as soon as one of the following events happens:
- you return to work;
- you reach the end of the policy term, which could be your 55th,
60th or 65th birthday, depending on the policy;
- the insurer's medical officer, who may check your medical condition
from time to time, decides that you are fit to return to work;
- or you die.
If you would like to talk to someone make sure you get independent advice from a finance broker as he or she will deal with multiple financial institutions and therefore and in a better position to get a better deal for you.
Income Protection is a protection policy that will pay out a regular cash payment, replacing part of your lost income if you have a long-term illness or disability and you are unable to work. Income Protection is also sometimes referred to as Permanent Health Insurance, but it must be stressed that Income Protection is not the same as a private health-care plan. e.g. private health-care plans help pay for the costs of your treatment, they do not pay out any extra cash benefit. While it is the case that like a pension people put it on the long finger it is vital that one has some protection against loss of income. The recent global recession has made this point abundantly clear.
Do I Need Income Protection?
If you become seriously ill you may be entitled to social welfare payments, sick pay or a level of income under your employers pension plan. If income from these sources is sufficient for your needs then you may not need extra cover from an income protection policy. However, you may need this cover if:
-You are self-employed;
-You would get little or no sick pay from your employer; or
-You have no ill-health pension protection.
How Much Would I receive from my Protection Policy?
You get a proportion of your earnings (75% up to €80,000), less any other social welfare payments you receive when you are out of work (such as sick pay or social welfare disability benefit).
Example: Joe is an employee earning €40,000 a year. He has an income protection policy that will pay up to a maximum of 75% of the amount he was earning
before he became unable to work, less any other income he is receiving.
Joe has recently become unable to work because of illness. He puts in a claim to his insurance company and starts to receive his payment after 26 weeks, which is his deferred period. Joe must tell his insurance company what other benefits he is getting while he is out of work. These are a social welfare disability benefit of €800 a month.
---------------------------------------------------------------------------
Example: Monthly Benefit for Joe as an employee
Insured benefit € a month
75% x €40,000 a year = €30,000 €2,500
Less social welfare a month - 800 -€800
Maximum benefit a month from the insurer €1,700
---------------------------------------------------------------------------
Who Can Buy Income Protection?
You must be in full-time paid work or be self-employed to take out and continue to have cover.
What Tax Benefits Do I Receive on Income Protection Premiums?
Tax Relief is available on your Premiums at your marginal rate of tax.
When Would I Receive The Benefit?
You get your benefit only after you have been unable to work at your normal job and are not working at any other job for a set period. This period is called the deferred period. You can choose from 13 weeks, 26 weeks or 52 weeks. If you choose 13 weeks it costs more than for 26 or 52 weeks because your benefit starts sooner.
How Long Would I Continue to Receive Income Protection Benefit?
Your insurer will usually stop paying your benefit as soon as one of the following events happens:
- you return to work;
- you reach the end of the policy term, which could be your 55th,
60th or 65th birthday, depending on the policy;
- the insurer's medical officer, who may check your medical condition
from time to time, decides that you are fit to return to work;
- or you die.
If you would like to talk to someone make sure you get independent advice from a finance broker as he or she will deal with multiple financial institutions and therefore and in a better position to get a better deal for you.
This article was written by Fergal Tully promoting income protection, if you would like to find out more you can go to our dedicated income protection web site. Alan Dolan is the owner of Zinc Financials which provides independent financial advice with more than 15 years industry experience. To see what other services we can provide please visit Zinc Financials websiten
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