What is Income Protection?
Income Protection (also known as Permanent Health Insurance or PHI) provides you with a replacement income in the event that you are unable to work due to any accident, illness or disability. The payment will commence once you have been disabled for a set period of time (known as the ‘deferred period’). These payments will continue until you have recovered and are fit to return to work, or until your chosen retirement age if you are unable to go back to work.
It is very suitable for;
• Those in full-‐time work be they employed or self employed.
• Certain occupations such as professionals, managerial staff, administrative and clerical workers.
• Those with a relatively clean bill of health
Frequently Asked Questions
How much Income is protected?
The maximum that you can cover yourself for is 75% of your income less any social welfare entitlements (currently circa €10,000 per annum). Note that State Illness Benefit is not paid to self-‐employed people.
There are some limits which vary slightly across life companies; but Friends First (our Income protection provider) cover 75% of the first €125,000 of salary plus 33% of the balance of your income, less social welfare entitlement. This is subject to an overall maximum of €175,000.
What Income counts?
It must be earned income so you cannot include rental income or dividends for example.
What are the relevant deferred periods?
The deferred periods are 13, 26 and 52 weeks. The deferred period is the time between when you are injured and when the policy will commence payment. The longer the deferred period, the lower the premium. Think about how long your savings would keep you going for to help you decide on the deferred period.
Is there any Tax Relief?
Yes -‐ The premiums you pay attract tax relief at your marginal rate.
Where does occupation come into it?
Your occupation is very important as some occupations will not be covered due to the nature of their work. Below is a table that will give you a good idea of what class your occupation falls into but it is not the definitive guide as there are some small differences between the various life companies.
Class 1 White-‐ collar occupations: no appreciable accident or health risk. These occupations will usually be office based. Examples include accountants, GP, IT consultant, solicitor, administration etc.
Class 2 Mainly white collar and predominantly administrative. Driving may be involved. Examples include quantity surveyor, sales rep etc.
Class 3 Skilled occupations, which may involve light manual duties but heavy lifting is rare .Examples include interior painters, foremen, electrical engineers and domestic electricians, dentists etc.
Class 4 Skilled tradespersons, working on construction sites using light power tools. Examples include carpenters and plumbers, teachers and nurses.
How many times can you claim on a policy?
You can submit claims on your policy as many times as you require benefits, right up to the end of the policy term.
What happens if my salary increases?
Our provider, Friends First, have an automatic benefit on their policies which allows you to increase the cover on your policy by a certain amount (20% of the original cover every three years) without having to provide evidence of health. This is optional. The premium will be revised accordingly at the time. This option may be exercised up to five times. If the increase is declined more than once when offered, it will not be offered again.
You can also select the Indexation Option on your policy. This means that your benefit will increase by a certain percentage each year and your premiums will also increase as well each year on your plan. The current rate of increase is 3.5% on premiums and 3% on benefits. This can help ensure that your benefit automatically stays in line with any salary increases and with inflation.
What is Escalation?
Escalation is another optional add on. You pay an additional premium for this
benefit and it means that during a claim, your benefit will increase at 3% per annum.
What is the difference between Guaranteed & Reviewable premiums?
The Guaranteed Premium option will ensure that your premium will not change during the term of the plan (unless indexation is chosen). This allows them to know in advance how much their premiums will be over the term of the plan. Reviewable Premium policies will be reviewed on the fifth anniversary and every five years thereafter.
Additional Benefits
The Friends First Income Protection policy comes with many additional benefits as standard; examples of some are as follows;
Hospital Cash
You would receive an income if you were in hospital for more than seven days during the deferred period. This income is equal to 1/365th of the annual benefit for each complete day they remain in hospital. This benefit will cease on the earlier of the 91st day spent in hospital or the end of the deferred period.
Proportionate Benefit
A policyholder may be entitled to a Proportionate Benefit in a situation where that Policyholder does not qualify for full Disability Benefit because:
• The Policyholder is not totally disabled by reason of sickness or accident to fully carry out his Normal Occupation and is able to do part of his Normal Occupation resulting in a loss of income; or
• The Policyholder is totally disabled from following his Normal Occupation but the Policyholder is doing a different occupation for profit, reward or remuneration resulting in a loss of income.
Rehabilitation Benefit
Tailored rehabilitation and exercise programmes can be designed if needed or appropriate to the type of injury suffered. This increases the level of strength and functioning of the injured area. The objective is to assist clients in continuing with their normal everyday activities in as much as possible.
Relapsed Benefit
If your client returns to work but finds that, within the next 6 months, they are no longer able to continue working due to the same illness or disability then we will recommence their benefit without the need for a further waiting period (provided
the medical evidence supports this).
Income Protection or Serious Illness Cover?
Income Protection and Serious Illness cover both provide valuable benefits to people in the event of sickness. However there are sizeable differences between the two and you should check which cover suits you best.
In some cases it can suit to have both types of cover but the guide below will help you decide which suits you best.
Serious Illness Cover Income Protection
What benefit do I receive?
Serious illness cover pays a lump sum to you if you are diagnosed with any of the specified illnesses named in the plan.
This lump sum can be used to pay off large loans, pay medical bills etc.
Income Protection provides you with a replacement income in the event that you are unable to work due to any accident or illness.
With this policy you are covered until you can return to work or until retirement age if you unable to return to work.
Which qualifies for tax relief?
There is no tax relief available on Serious Illness premiums.
You can claim tax relief at your marginal rate on your Income Protection premiums.
What about Continuity of Cover?
Once you secure Serious Illness cover-‐
that cover lasts for the duration of the policy or until you make a claim.
A claim will make it very difficult to replace that cover in the future.
Income Protection benefit will continue even if you suffer an illness which triggers a claim.
Your benefit will continue to be paid to you from the end of your deferred period until you no longer satisfy your definition of disability, you recover, your policy ends, you retire or you die (whichever comes first).
Is it difficult to get cover?
More people tend to qualify for this type of cover as their occupation is not a factor.
It can be difficult for certain occupations to get Income Protection cover.
Income Protection is best for you if you wish to protect your future from the loss of income due to illness or injury. However if you do not qualify for it then a Serious Illness policy equal to a multiple of your salary is the next best thing.
Some Tips on calculating how much Income Protection cover you need
1. Establish what your relevant earnings are. This would include your basic salary, bonuses and regular overtime. In short what would appear on your P60. If you are self employed you would look at your company accounts and notices of assessment. ( NB – relevant earnings does not include non –earned income such as rental income, dividends etc)
2. Take 75% of the earnings figure established above.
3. Check if you qualify for any other benefits. For example: state illness benefits, employer disability benefits or any other Income Protection plans already in place etc.
4. Deduct the existing benefits in (3) above from the maximum income amount to get the total figure you require for cover.
5. Choose the most suitable deferred period (13, 26 or 52 weeks) keeping in mind a number of factors such as :
a. How long will your employer pay you in the event that you cannot work due to illness or injury?
b. How long will your savings last if you have no income?
NB; Please note that typically there is a higher premium the shorter the deferred period you choose.
If you have any queries or need any help at all, please contact us on 1890 300388 or info@lowcommission.ie
