Is Income Protection Insurance Worth It?

You hope you’ll never need it, but income protection insurance can be a financial lifesaver. Here’s our guide to income protection insurance and what to consider before making an application.

Income protection insurance can provide you with a portion of your regular income if you are unable to work for an extended period due to illness or injury.

Unlike life insurance, which pays a lump sum on your death or being diagnosed with terminal illness, income protection insurance is all about providing a regular income to keep you and your loved ones financially afloat while you get back on your feet and back to work.

Usually a waiting period, known as the defered period, applies before any income protection payment is made; that is, you need to be unable to work for longer than the waiting period, and after that, entitlement to income protection benefits commences. Usually, payments are then made monthly in arrears.

Different product options, levels and lengths of cover bring with them different premiums, so your premiums will vary depending on the type and level of income protection insurance you select. However, your health, lifestyle and occupation will also play an important role in your eligibility for cover and the cost you may pay.

When you apply for income protection insurance, you will generally have to go through underwriting, a process carried out by your insurer that takes into account your personal circumstances (like your age, your occupation, income and any existing health conditions and history) to ensure that the cost of the cover is proportionate to the risks presented by you.

If you work in an occupation that has an increased risk of accident, like a farmer or a painter & decorator, for example, you may find that your premiums are higher than someone working in a lower accident risk environment like an office.

If you are trying to decide whether income protection insurance is worth it for you, you’ll need to weigh up the financial peace of mind and security that the right policy offers against how the premiums would fit into your monthly budget.

To do this, think about what you would do if you were unable to work, where you would draw money from and who relies on your income to pay for regular outgoings. If you had no income for an extended period, would you be able to draw down on savings? Is there another family member who could pick up the slack? Could you keep up with your mortgage and other expenses?  Do you have any sick leave or other leave you could use first, or assets you could sell to access funds?

These questions are personal to you, but are key to determining whether or not income protection insurance is appropriate for you and your family.

Premiums have been approved by the Revenue Commissioners and under current legislation you can normally claim tax relief on the premiums you pay at your highest rate of income tax. The maximum level of contribution on which tax relief can be claimed annually is 10% of total earned income. It is your responsibility to claim this tax relief.

In reality, the benefits of income protection insurance go beyond the potential payout. Having an effective insurance policy in place provides you with valuable peace of mind. You can get on with doing your job and enjoying your life, safe in the knowledge that you won’t be without an income if the unexpected should happen.