Income Protection-You have the questions,we have the answers!
How does income protection work?
Most income protection policies pay out a benefit if you are unable to work due to an illness, injury or disability, and you do not have a second job. If you are able to continue to work in a secondary job despite your illness, injury or disability you will be unable to make a claim on an income protection policy you have on your primary job.
You get your benefit only after you have been unable to work at your job (and are not working at any other job) for a certain period of time. This is called ‘the deferred period’. When you take out your policy, you can choose what deferred period you think would suit you best, typically four weeks, 13 weeks, 26 weeks or 52 weeks. If you choose a deferred period of four weeks, which means you must be unable to work for four weeks before the income protection payments begin, it will cost more than if you chose 13, 26 or 52 weeks. Some policies may have no deferred period. Before you make a decision on the deferred period, check if your employer offers sick pay and if so, how much and for how long.
Do you need income protection?
You may need income protection if you:
- Are self-employed and would have no source of income if you couldn’t work due to illness or disability
- Have little or no sick pay from your employer
- Have no ill-health pension protection
- Have dependants who rely on your income
- Have no other source of income
- Do not have sufficient benefits to replace your lost income and/or cover your expenses
Before you take out income protection, you should check if you are entitled to other benefits, which may mean you don’t need income protection insurance:
- Social welfare illness benefit: a weekly payment you may get from the State. It is not available if you are self-employed
- Social welfare disability benefit: a weekly payment you may get from the State. It is not available if you are self-employed
- Sick pay: your employer pays all or part of your wages for a time
- Ill-health retirement pension: this lets you take early retirement with a pension if you become permanently unable to do your job. If you are a member of an employer pension scheme, you may be entitled to get this type of pension
How do you get cover?
You can buy income protection insurance from:
- An insurance broker life Low Cost Life Cover .ie who can look at all the policies on offer and help you choose the one that suits you best.
- Directly from an insurance company.
- You may be able to buy this cover by joining a group scheme at your workplace. It is usually cheaper to join a group scheme but may not have all the same benefits as an individual policy.
How much does it cost?
Costs usually depend on the following:
- Your Job – as some jobs are more risky than others
- Level of cover (usually linked to a percentage of your income)
- Deferred period you choose
- Term of the policy
- Age – as you get older, income protection will cost more and a new policy may have more exclusions, particularly if your job or state of health have changed
- Your health
- Your family medical history
- Lifestyle choice that may impact your health i.e. smoking or drinking
How much income will you get?
- If you have an individual policy, you can set the amount you want to be insured for when you take out the policy. There will usually be a maximum amount you can insure. The policy terms and conditions will tell you the maximum amount you can claim. This is usually 75% of your earnings before you became ill or disabled, less any other income you get while out of work, such as sick pay, and single person’s social welfare illness benefit – if you are entitled to it.
- If you are insured through a group scheme, you get the proportion of your earnings stated in the group policy, less any other payments you get when out of work. These payments may include sick pay or social welfare disability benefit.
How long does your benefit last?
Usually your benefit payment stops as soon as one of the following happens:
- you return to work
- you reach age 55, 60 or 65, depending on the policy. This is called the ‘benefit cessation age’. This should be no later than your planned retirement date
- the insurer’s medical officer, who may check your medical condition from time to time, decides that you are fit to return to work
- you pass away
- Some group policies through your employer may only last for 3/6/12 months after which you may have no cover.
How much relief do you get on your income protection premium?
- You can get tax relief on your income protection premium at your marginal (highest) rate of tax, up to a yearly limit of 10% of your total income. This can make your premium more affordable, but remember your benefit will be taxable if you make a claim. If you have an individual policy, your insurance company will give you a statement showing the premiums paid. To claim your tax relief, you need to include this information with your tax return. If you are a member of a group scheme, your employer usually takes your premium from your salary before tax. In this instance you would not qualify for tax relief.
Making an income protection claim
If you are out of work due to illness or injury and have an income protection policy in place, there are a number of basic steps you should follow when making a claim:
- Check your deferred period: when taking out an income protection policy, you will have set out your ‘deferred period’. The deferred period is the length of time between you being unable to work and the policy benefit being payable. Deferred periods tend to range from 4, 13 to 52 weeks. If you are still within your deferred period, you will be unable to make a claim.
- Complete a claim form: you will need to submit a claims form to your insurer when making a claim. Remember to complete the forms as accurately as possible to avoid delays or refusal of your claim. If you are unsure of any information requested on the form contact the insurer or broker.
- Get your paperwork in order: when making a claim on an income protection policy, you will be required to submit documentation to support your claim. Examples include medical certificates, proof of earnings, medical assessments etc. Your insurer or broker will advise you of what is required.
Cancelling your income protection policy
- If you are cancelling your income protection policy you will need to cancel the direct debit to your old insurer. To stop a direct debit, you must cancel it by writing to your bank or via your app. You should also contact the third-party supplier – in this case your old insurance provider, to make sure that the direct debit has been cancelled.
Low Cost Life Cover is an independent broker with agencies with all the major insurers Zurich, Royal London Ireland, Irish Life, Aviva and New Ireland. It is our job to provide you with the best independent advice that is the most suitable for your needs. I would be happy to discuss your individual needs if you have any questions give me a call 01 6853818, I’m from Donegal I love to talk!