Financial Insights

What is Income Protection?

An Income Protection plan is designed to pay out a regular income in the event you are unable to work due to an accident or illness. These types of plans continue to pay out an income as long as you are unable to return to work up until the end date of the policy (this is typically your normal retirement age).

They have a major feature that sets them apart from other insurances that protect your lifestyle. That is, you can make multiple claims during the life of the policy. The insurer cannot decide they don’t want you anymore once you have claimed … provided you pay the premiums of course.

Income Protection is often seen as the foundation of financial planning because most peoples’ plans for the future depend on an income in the present.

Who is it for?

If you work for a living (employed or self employed) then you almost certainly need an income protection plan.

Imagine being unable to work because of sickness or accidental injury. A couple of days off work, even a couple of weeks, might not make a huge difference to your finances. But what if your condition was more serious and you were absent for a prolonged period? Money worries could soon add to your troubles.

Even if your employer provides sick pay, it is unlikely to last for longer than twelve months. For most people, employer and State benefits are simply not enough to keep them financially afloat when illness or accident strikes. What happens when your employer benefits cease?  How would you cope on State benefits? What would happen to your future plans?

If that’s not bad enough … what if you are self- employed? … No State benefits for you for a long time!

So for most people, ongoing income protection is essential. As Independent Financial Advisors we can help you find the plan that best meets your needs, and fits in with your overall protection strategy.

How does it work?

In a nutshell ...

• You can insure up to 70% of your earnings because the benefit is tax-free
• You work out how long you could manage before the cover pays out – this is called the deferred period and a longer deferred period means a lower premium
• You set an end date for the plan – this is usually your retirement age
• There are more features available according to the insurer providing the cover. These are just examples of the many benefits that are available.
  
  
• You may have access to an advice line where you can speak to a doctor

• • Some insurers will actively help you to get back to work
  • You may be able to have your benefit indexed so it keeps pace with inflation
  • You may actually be able to limit the time that the benefit pays out for (typically two years). This is a lower cost option to make the policy more affordable, and you can usually transfer to the full policy when you can afford it.
  • You may be able to take a career break and keep the policy going for a much reduced premium
  • You may be able to take out some cover for a home-maker. This is usually called ‘house-person’s benefit’. This could be useful in case outside help is needed to be paid for because the person running the home becomes incapacitated.
  • You may even be able to claim child-carer benefit if you have a child who is diagnosed with a specified condition. This would make it easier for you to take time off work to care for the sick child.