Income Protection Insurance –
We are always making plans – plans for the weekend, for our next family holiday, our children’s education, our retirement. For most young people their ability to earn is their biggest asset. Over time, and with proper planning, this is replaced by personal and pension assets. But what happens if your ability to earn is cut short early in your career due to illness or injury?
Income protection provides a replacement income if you cannot work due to illness or injury after a certain period of time. You can take out income protection if you are in full-time work or are self-employed and receive tax relief on the premium at your highest rate of tax.
How Income Insurance Works
- You decide how much cover you need based on your current earnings, the deferred period you want, how long you need the benefit to be paid for, and length of time your require cover for.
- You make regular payments to keep the cover in place.
- The insurance company provide cover until your plan ends, no matter how many claims you make.
- You must inform the insurance company when an illness or an injury stops you working.
- The insurance company pay you a monthly income from the end of your chosen deferred period for as long as you are eligible.
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
How much cover do you need?
Your Harvest Adviser will help you decide how much cover you need. That cover should reflect your income. The benefit you receive must be set at a level which makes you no better off financially. This is so that you have an incentive to return to work.
In general, the most cover you can have at any one time (including that provided under other income protection plans and continuing income from your job or pension) is:
- €250,000 a year; or
- 75% of your total yearly earnings; less any state benefits for disability (except benefits for children) and other forms of income you may have.
How much does Income Protection cost?
Costs will mainly depend on the:
- Level of cover (usually linked to a percentage of your income).
- Deferred period you choose.
- Term of the policy.
After that, the main factors are your age, health, family medical history, job and lifestyle. As your age also affects your premium, we advice you don’t cancel your policy to take out a new one unless you have a good reason. 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.
How much tax relief do you get on your premiums?
You can get tax relief on your premiums at your marginal (highest) rate of tax, up to a yearly limit of 10% of your total income. This can make premiums more affordable, your benefit will be taxable if you make a claim.
If you are a member of a group scheme, your employer usually takes your premiums from your salary before tax.
If you have an individual policy, your insurance company will give you a statement showing the premiums paid. To claim your tax relief, you include this information with your tax return.
How do I get a quote for Income Protection?
For more information, or to arrange a meeting to discuss your income insurance requirements, please contact us on 01 2375500 or email us at justask@harvestfinancial.ie.
