Income Protection is a type of insurance policy that pays you a monthly income if you are unable to work due to illness, injury or unemployment. It is one of the most tax efficient investment types in Ireland and can provide protection for a large gap in your finances if you were to lose your salary because of illness or injury.
An Income Protection policy can provide an ongoing income for you and your family if you are unable to work due to illness, injury or unemployment.
An Income Protection policy can provide an ongoing income for you and your family if you are unable to work due to illness, injury or unemployment.
The policy is designed to give protection against loss of earnings where a person cannot work because of sickness or accident. Under this type of insurance, the insured (the policyholder) would receive a monthly payment which is based on the current level of their salary up until retirement age (if they haven’t retired already).
This type of cover works in much the same way as a life insurance policy – in that it pays out when there is a claim made on it – but differs from life insurance in several important ways, including:
- The length and frequency of payments tend to be longer than those under an ordinary term assurance product;
- The reason behind making a claim must be related to sickness or injury; * It may have fewer exclusions than some other types of personal lines business;
The State provides social welfare benefits to some people who are unable to work.
If you’re not working, the State may provide social welfare benefits to you. This can be paid for up to 6 months.
You may be entitled to a range of benefits depending on your circumstances. These include:
- Job seekers allowance – if you are over 18 years old and unemployed but able to work and actively looking for a job
- Disability allowance – if you have a disability that affects your ability to work
You can find out more about these payments by going online and searching “social welfare”.
The majority of people will have a significant gap between what they get from the State or their employer, and what they need to live on.
The majority of people will have a significant gap between what they get from the State or their employer, and what they need to live on. This is true for both those who are financially secure and those who are not.
For example:
- Someone with an illness or injury might have to take time off work, but may not be able to afford the cost of living on their own income. They may need additional money to cover things like childcare costs during this period (or alternatively, if there is someone else in their life who can step in).
- The same goes for people saving up for something big like buying a house or going abroad on holiday; they won’t necessarily have enough savings to cover all their expenses while they’re doing so.
Some employer schemes do not cover all of your income.
Some employers in Ireland provide income protection benefits to their employees. This can be a great benefit, but some employer schemes do not cover all of your income. If you are planning on taking out an Income Protection policy, it is best to ensure that it provides you with the same level of protection as your employer’s scheme.
Some employer schemes provide benefits for up to 2/3rds of monthly salary and have no upper age limit. However, these policies are usually not flexible and do not allow you to choose how much cover you want or when you want it: they will only pay out on injury or illness if they deem them to be accidents or illnesses related to work activities.
Your mortgage repayments and other regular monthly bills must be paid whether or not you are working.
The following expenses must be paid before any payment is made to you:
- Mortgage repayments, rent and car payments
- Insurance premiums
- Other regular monthly bills such as utility bills, school fees or childcare costs. You may also have other expenses such as private medical insurance that need to be paid regardless of your employment status.
You may have other expenses such as childcare costs, school fees, private medical insurance and utility bills that need to be paid regardless of your employment status.
If you’re self-employed and want to claim tax relief on your income protection premiums, there are some other expenses which you may wish to consider claiming as well, such as:
- childcare costs;
- school fees;
- private medical insurance; and
- utility bills.
If you become disabled and cannot work, the numbers just won’t add up without Income Protection.
If you cannot work due to a serious illness or injury, your income will be significantly reduced. If you have no other sources of income, social welfare benefits may cover your mortgage repayments and other bills but they will not be enough to live on. The numbers just won’t add up without Income Protection.
This is where an income protection policy can be useful. It provides a lump sum payment if you’re unable to do any kind of work (including self-employment) for at least 90 days due to a serious illness or injury, and it’s paid out regardless of how long the waiting period is; so even if there is a 12 month gap between making a claim and receiving an award from your insurer, all payments are made up front rather than being spread over time as with many other types of policies (life insurance for example).
Income Protection is one of the most tax efficient investment types in Ireland.
- Income protection is one of the most tax efficient investment types in Ireland.
- Income protection can be used as an investment tool to supplement other investments, or it can be used to provide an income for your family.
The income that is paid out by Income Protection is tax-free where the benefit period is more than 2 years.
The income that is paid out by Income Protection is tax-free where the benefit period is more than 2 years. The main reason for this is the way Income Protection works. It’s an investment type of policy with a guaranteed return on your premiums, so it’s not considered a salary sacrifice arrangement.
Even if you don’t need income protection, there are other ways to take advantage of tax efficiency with this type of policy:
- Paying back debts such as credit cards or overdrafts can be done through an Income Protection plan instead of taking out a personal loan. This will reduce your debt and interest payments, which in turn reduces your tax liability each year.
- If you’re self-employed and have significant expenses such as rent or mortgage payments every month (e.g., on a buy-to-let property), these could be covered by an IPP without impacting your take home pay significantly (and thus lowering your annual income).
Once a claim has been accepted, premiums paid for any income protection policies which have been assigned for security for a mortgage will be refunded by the insurer to the lender.
Once a claim has been accepted, premiums paid for any income protection policies which have been assigned for security for a mortgage will be refunded by the insurer to the lender. This is known as ‘reimbursement’ and is at the discretion of your insurer.
Reimbursement will only occur when your income protection policy was assigned prior to becoming disabled, so that the policy can continue while you are incapacitated. In most cases, only part of your premium will be refunded. This can range from 50% up to 100% depending on your financial circumstances and how long you were assigned before becoming disabled or getting sick. It’s important that you check with your insurer what percentage is likely in light of these factors before taking out an income protection policy in order that there are no surprises later down the line when trying to claim on it!
An Income Protection policy can provide protection for a large gap in your finances if you were to lose your salary because of illness or injury.
An Income Protection policy can provide protection for a large gap in your finances if you were to lose your salary because of illness or injury. Income protection is a tax efficient investment that can protect your income if you are unable to work due to illness or injury. An income protection policy may also be assigned as security for a mortgage application.
Income Protection Premiums are tax deductible, so if you wish to invest in this type of insurance, it’s important that you speak with an expert financial planner first before making any decisions about how much cover would be appropriate for your particular circumstances.
Conclusion
Income Protection can be a tax efficient way to provide protection for your income when you are unable to work. It’s important to know that if you become disabled and cannot work, the numbers just won’t add up without Income Protection.
