Salary/ Income Protection Insurance Donegal

Income Protection, what is it?

Income Protection Insurance also known as Salary Protection Insurance or PHI, pays you a regular income when you are not able to work through accident or illness and suffer a loss or reduction in income. It helps protect your standard of living when you are not able to work.

 

Income Protection: A Crucial Financial Safeguard

Salary / Income Protection Insurance | Advice First Financial

Income Protection, also known as Salary Protection Insurance or PHI (Permanent Health Insurance), plays a pivotal role in maintaining your financial stability during times of unforeseen accidents or illnesses. This invaluable insurance product offers a financial lifeline, ensuring you receive a regular income even when you are unable to work. In this guide, we explore the benefits and workings of Income Protection, illuminating its significance as a safety net for your standard of living.

Current Illness Benefit

Currently, in Ireland, the illness benefit is €225.50 weekly/ €11,726 annually (correct as of May 2023), If you are currently earning €40,000 per year/ €3,333 monthly, what would the financial impact be if you suddenly dropped to €977 monthly. If you think about all the bills you have plus the savings goals you have,  your children’s college fees, holidays, retirement, etc. What would not get paid?

Salary Protection is more important for the self-employed, who are not even entitled to state illness benefits. So, self-employed people have no protection at all.

By having Income Protection in place you have peace of mind if you become unable to work and you can concentrate on getting better and use the regular income to help make your mortgage repayments or any other bills that you have.

If you’re self-employed or have a job that doesn’t offer sick pay, income protection insurance, sometimes called Salary Protection, is a smart way to ensure you’re financially protected in the event of an illness or injury.

Income protection insurance can be especially valuable if you’re self-employed, as you won’t be eligible for sick pay from an employer if you’re unable to work. However, even if you’re employed, you may want to consider income protection insurance if your employer doesn’t offer sick pay, or if you’re concerned that the sick pay offered won’t be enough to cover your expenses.

Overview of income protection

Some basic key benefits of an Income Protection plan.

  • You can protect up to 75% of your salary, less any social welfare payment or any other income you would be in receipt of if out sick
  • Payment can kick in from 4, 8, 13, or 52 weeks.
  • You can choose the age you want the cover to continue to, from age 55 to age 70
  • You can choose to have the benefit of a claim increasing annually
  • You protect your cover against inflation by increasing the amount covered annually
Donegal Coins Income Protection with Blue Umbrella

Claim Tax Relief on Income Protection

The good news is that, in some cases, you may be able to claim tax relief at your marginal rate on your income protection premiums. Here’s what you need to know.
This means that you’ll be able to offset some of the cost of your insurance against your tax bill, potentially reducing your overall tax liability.
To claim tax relief on income protection insurance, you’ll need to meet certain criteria. The main criteria are as follows:

  • The insurance policy must be in your name, and not in the name of your business.
  • The insurance policy must be a pure protection policy, which means that it only pays out if you’re unable to work due to an illness or injury, and not for any other reason.
  • The premiums must be paid from your taxed income, and not from your business.

Assuming you meet these criteria, you should be able to claim tax relief on your income protection premiums. The amount of tax relief you’ll be eligible for will depend on your individual circumstances, such as your tax bracket and the amount of your premiums.

How to Claim Tax Relief on Income Protection Insurance in Letterkenny & Donegal

To claim tax relief on your income protection insurance premiums, you’ll need to include the cost of the premiums on your self-assessment tax return. You can do this by entering the amount you paid for the premiums in the ‘other expenses’ section of the tax return.
It’s important to keep records of your income protection insurance premiums, as you may need to provide evidence of the payments in the event of a tax audit.

Conclusion

If you’re self-employed or don’t receive sick pay from your employer, income protection insurance can be a smart investment. And if you meet the criteria outlined above, you may be able to claim tax relief on your income protection premiums, reducing your overall tax liability. As always, it’s a good idea to speak to a financial advisor to get specific advice for your individual circumstances.

Existing Plan in place

If you have a plan in place already, you should review it with a trusted advisor to make sure it suits your needs. As Financial Brokers we can research the marketplace to bring you the best cover (for you) at the best available price.  We can assess your existing plan to ensure it meets your needs.
At Advice First our Key Focus is our customers. We are committed to providing you with a quality service at all times.

At a Glance…

  • Choose the regular income amount you want to provide if not able to work (limits apply)
  • Can cover you up to the age of 70
  • We’ll get you the best deal from our panel of insurers
  • Paid to you with minimum fuss
  • Cancel the policy at any time without penalty
  • Pay monthly by direct debit to spread the cost
  • Tax relief available at your marginal rate band

If Unsure

Why not take advantage of our Protection Review, this review will give you a professional assessment of how well your existing arrangements meet your needs and may even save you money.

Frequently Asked Questions About Income Protection Insurance

What is income protection insurance?

Well, you can Click here to get Wikipedia’s definition.

Income Protection Insurance is a policy designed to pay out a regular income if you are unable to work due to an accident, or sickness. The payout will enable you to continue to meet your essential household costs. For example, your mortgage/rent, utilities, and putting food on the table, until you are able to return to work.
Income Protection is also commonly known as Salary Protection or wage protection!
Ultimately, all of these names are just another name for income protection insurance.

How much does an income protection insurance policy cost?

The cost of an income protection insurance policy will vary depending on a few factors. These factors are…

  • Your age
  • Your occupation
  • Smoker or not
  • If you have any pre-existing medical conditions
  • The amount of Income you want to protect
  • What defer period you would like on your policy

To give you an indication, you can use the Aviva calculator below. I would recommend speaking with a trusted advisor though to make use you put in place the correct cover for you. There are lots of terms and conditions with this type of cover, so, do seek advice before putting the cover in place

Income Protection Insurance Calculator – Aviva Broker

How much does an income protection insurance policy cost?

The cost of an income protection insurance policy will vary depending on a few factors. These factors are…

  • Your age
  • Your occupation
  • Smoker or not
  • If you have any pre-existing medical conditions
  • The amount of Income you want to protect
  • What defer period you would like on your policy

To give you an indication, you can use the Aviva calculator below. I would recommend speaking with a trusted advisor though to make use you put in place the correct cover for you. There are lots of terms and conditions with this type of cover, so, do seek advice before putting the cover in place

Income Protection Insurance Calculator – Aviva Broker

What does the deferred period mean on Salary Protection?

This is the waiting period until the Salary Protection Insurance income kicks in. The longer the deferred period, the cheaper your premium will be.

You can choose a deferred period of 4, 8, 13, 26, or 52 weeks – and yes, you choose it yourself. Before choosing, think about how long you and your family could realistically survive financially without your income, and let that be your guide.

4 or 8 weeks is probably grand for most people, but after that, it’d start to get a bit hairy.

Other factors to consider when choosing your deferred period are what other saving/investments do you have in place that can be utilised.

When does the Income Protection Insurance pay out?

Income Protection Insurance pays out once your claim has been accepted by the insurance company, so it usually happens fairly fast.

But remember, the payment only starts after your chosen deferral period.

Will I be taxed on the income from a Salary Protection Insurance Plan?

Yes, you will be taxed on the income from a Salary Protection Insurance Plan but you can claim the tax back.

The pay-out is taxed in the same way as your normal income. The good news is though you get full tax relief on your premiums on your marginal rate. So, a higher rate taxpayer will get 40% tax relief of the cost of Salary Protection Insurance. For example, if you were paying €100 per month for your protection the cost is really only paying €60 per month after tax relief.

More on the tax relief click here: Permanent Health Benefit contributions (revenue.ie)

Can I get tax Relief on the cost of Salary Protection Insurance?

You can get tax relief on your income protection insurance 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 may 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.

Is Income Protection Insurance worth it?

We would have to say, yes, of course, it is. Income Protection Insurance is worth it.

Your health is the most valuable asset you have and being in good health allows you to earn your income. Which in turn allows you to pay for things like mortgage your car, put food on the table, and provide for your loved ones, I am sure you get the picture.
You’d be in bother without your income.

So, for the sake of a few euros a month, yes is it well worth it.
When you have a health crisis the last thing you need are financial concerns as well.

That is of course unless you are already financially free and don’t have to work for a living. In that case, congrats, and you don’t need Salary Protection.

The Meaning of Financially Free: The Real Meaning Of Financial Freedom (forbes.com)

Does my occupation effect Income Protection Insurance?

Insurers classify your occupation according to the risk of injury in your job.

For example, a Financial Broker, like me, is a class 1 (lowest risk) whereas a plumber is a class 4 (highest risk). The higher the risk, the higher your premium. Some occupations will not get his cover at all. Check with your advisor as to what class your occupation falls into.

Who is the best for Salary Protection Insurance?

Currently, there are 5 providers in Ireland providing Salary Protection Insurance type of cover.

When it comes to the best provider for you, it will depend on a couple of factors

  • The occupation class are you in with the providers. Some occupations may be a class 2 with one provider but class 3 with another. Obviously, this has implications on the price you pay.
  • Underwriting, meaning is one provider going to apply a loading or an exclusion where anther provider is not

When it comes to the best provided in general.
If all providers are offering the same price etc, then we would consider Aviva to the best provider. They’ve won the Best Income Protection Product Award for the last seven years in a row; they pay more claims and they have been doing it the longest. According to Aviva, around 90 percent of their claimants would recommend them so they’re obviously doing something right.

And…it’s who my policy is with. And unfortunately, I have had to claim on mine but fortunately I had it to claim on.

Is there a maximum amount of cover I can put in place?

Yes. You can cover up to 75% of your salary to a maximum benefit amount of €262,500 when you’re off work due to illness or injury – (less any social welfare payments) either until you return to work or your chosen retirement date if you’re not fit to return to work before then.

Can I choose when I want payment to start?

Yes, you can choose when you want payment to start. You can choose from 4, 8, 13, 26, or 52 weeks.

For many people, their employer will pay them for a period of time. It’s after that, you need the cover most. For example: if your employer will pay you for a six-month period while you are unable to work then you should choose your start date (also known as a deferred period) as 26 weeks.

Can I claim more than once?

You can claim as many times as you need to over the term of your plan.

Should you be in claim and go back to work but relapse within 6 months your benefit will immediately restart.

What does indexation mean?

Indexation means:

When setting up your plan you can choose to keep the same premium and same income throughout your plan or increase both your premium and your benefit each year by selecting the indexation option. It is important to review your plan at least annually.

What does Escalation mean?

Escalation means when setting up your plan you can choose to have this option included.

If selected your benefit, should you be in claim, will increase each year. We would always recommend including this valuable option.

How much cover do I need?

To work out how much income protection insurance you need, you should ask yourself these questions about what would happen if you were unable to work due to illness or injury.

Are you an employee or company director? Check what – if any – sick pay arrangements your employer has in place for you
Are you self-employed? Your business may continue to generate income in the short term, but there will be an impact in the long term.
Will you get state benefits? You may be entitled to the State Illness Benefit for a limited period. But how far will that stretch?
Do you have savings and investments? If you have a nest egg tucked away, you may be able to rely on that for a while. But how long will it last

How do I get set the Salary Protection Insurance up?

Five steps to creating your own income protection plan & get set the Salary Protection Insurance.

1 Choose how much of your income you want to protect You can cover up to 75% of your earnings (excluding Benefit In Kind) less State Illness Benefit up to an overall maximum of €262,500 a year/€5,048 a week.
2 Choose when you want your payments to start There is an initial waiting period – called the deferred period – at the start of your claim. This is how long it will be before your income will start. You can choose how long this is: 4, 8, 13, 26 or 52 weeks
3 Choose the type of premiums you want to pay. You can choose from two types of premiums: • Guaranteed premiums – the amount you pay doesn’t change as long as your benefits stay the same. • Reviewable premiums – your premiums stay the same for the first five years of your plan. The provider will review your premium on the fifth anniversary and could increase it, reduce it or keep it the same.
4 Choose when your plan will end. This is the age at which your plan finishes – called the ceasing age. You can pick any age between 55 and 70 years
5 Choose whether to keep your premium and benefit the same or add an annual increase. You can keep the same premium and same income throughout your plan • Or increase both your premium and your benefit each year by selecting the indexation option. • You can also include an escalation option which allows your benefit to increase by 3% each year while we’re paying your claim

 

How do I claim the tax relief on my income protection insurance premium?

You can claim the tax relief during the year by following these steps:

  • sign into myAccount on revenue
  • click on the ‘Manage your tax’ link in PAYE Services
  • select ‘Claim tax credits’
  • select ‘Health’ and ‘Income Continuance’.

    To claim the relief for a prior year, follow these steps:

    Previous years:

    • sign in to myAccount
    • click on ‘Review your tax’ link in PAYE Services
    • select the ‘Income Tax Return’ for the year you wish to claim for
    • in the Tax Credit & Reliefs’ page select ‘Health’ and ‘Income Continuance’
    • complete and submit the form