Income Protection Insurance is designed to partially replace lost income due to medium or long-term illness or disability. To qualify for cover, you must be in paid full-time work of be self-employed. It does not cover redundancy.
The deferred period: what you should know
Insurers pay out only after the policy holder has been unable to work at their job for a certain period of time. You can take control of this by choosing the deferred period you think would best suit you. The typical periods are:
- Four weeks
- Thirteen weeks
- Twenty-six weeks
- Fifty-two weeks
The shorter your deferred period the higher your premium. For instance, if you choose cover to kick-in after four weeks of unavoidable employment, your premium will be higher than it would if you had chosen a deferred period of fifty-two weeks. Before you make a decision on the deferred period, check if your employer offers sick pay and if so, how much and for how long.
Why do I need it?
You may need income protection if:
- You are self-employed – the self-employed are particularly at-risk as they cannot claim sick pay and do not qualify for social welfare disability benefit
- Your employer does not provide sick-pay
- You have no ill-health pension protection
- You have dependants who rely on your income
- You have no other source of income or money
- Benefits you may be entitled to would not be enough to cover the cost of living
How do I get it?
The ideal situation is to take out Income Protection Insurance as part of a group scheme, such as those provided in the workplace, as it is often cheaper and insurers require less detailed medical information in this situation. If you take out an individual policy, it may be more expensive and you will likely have to give more detailed information to your insurance provider.
The cost of your premium will depend on things such as:
- Your deferred period (see above)
- The amount of your cover (calculate as a percentage of your income)
- The length of your policy.
There are other considerations to take into account, such as age, health, job type (some are considered riskier than others and, as such, cost more) and lifestyle.
How is my benefit amount calculated?
Group policies differ to individual policies.
If you are insured as part of a group, you will be paid a pre-agreed amount stated in the group policy. This is based on a proportion of your earnings, minus any other payments you get when out of work, such as sick pay or social welfare disability.
If you have an individual policy, you have greater control over the amount you wish to be paid should circumstances dictate. You can set the amount you want to be insured for when you take out the policy, within limit. The maximum you can claim for is usually 66 per cent or 75 per cent of your earnings before you became ill or disabled, minus other income you get when out of work, such as sick pay, and the single person’s social welfare illness benefit if you are entitled to it.
Your benefit payment stops as soon as one of the following happens:
- You go back to work
- You reach the ‘benefit cessation age’. This is the age stipulated in the policy and should be no later than your planned retirement date.
- The insurer’s medical officer deems you fit to return to work
You may not need Payment Protection Insurance if you are entitled to other benefits, such as:
- Social welfare disability benefit – a weekly payment from the state. The self-employed do not qualify.
- Sick pay – employer pays all or part of your wages for a given period
- Ill-health retirement pension. Permits you to take early retirement with a pension if you become permanently unable to perform your job.