Many people believe that their most valuable asset is their home. In fact, your income is your most valuable asset because it governs how you and your family live.
How would your standard of living be affected if you had an accident or suffered an illness and you were unable to work for a long period of time?
You could face a large drop in income if you are off work and this drop in income could place significant pressure on your ability to meet your day to day expenses, such as mortgage and other loan repayments.
If you are an employee and pay PRSI the social welfare Illness Benefit or Invalidity Pension may replace part of this lost income. However, the benefits are low and if you are self-employed you are not covered for these benefits at all.
An Income protection policy will provide you with a regular income, paid out if you cannot work due to illness or injury. It is designed to supplement some of your lost earned income.
Income protection is available to those in full-time employment and the self-employed.
While it protects you if you are out of work due to illness or disability; you are not covered for redundancy.
The policy pays out if you are out of work for longer than a period referred to as the “deferred period”, which typically ranges from 8 to 52 weeks.
The payment commences after the deferred period and will continue to be paid until you get better and return to work; reach retirement age or you die, whichever comes first.
The contributions you pay to your income protection plan are deductible for income tax against your earnings at your marginal rate, subject to a limit of 10% of your total income.
If you pay tax at the 40% rate, for each €1 you pay for income protection you can claim 40 cent back in tax relief. So an annual premium of €1,000 actually costs you €600, after tax relief.
However, when Income protection cover is paid out, it is paid subject to PAYE.