Income Protection

Why Should You Consider Income Protection Cover?

The need to protect your income is something that cannot be sidetracked or put on suspension mode. In slightly ominous overtones, it would be unwise to brush aside the thought of today’s perfect health, turning into some unexpected and unwanted health concern, tomorrow.

Such an out of the blue health impediment can put sudden breaks on the earning capacity of any individual. This health hurdle can afflict anyone – whether you’re young, middle-aged or veering towards elderliness.  It will be an awful prospect if you would be unable to work, for a short or long span, and thereby find your income earning capacity restricted all of a sudden.

The Need for Income Protection

Income protection is a form of insurance coverage which helps an individual to continue availing a certain amount of regular income, even when s/he is unable to work. This is until he or she joins back to work having recovered from an impending illness. In layman terms, coverage is taken for an unexpected income loss, due to a variety of health reasons. The premium that must be paid is the cost that which will be incurred for uninterrupted continuation of the working income.

Consider these facts –

• In 2017, Irish Life, one of Ireland’s biggest Life Assurance and Pensions Company paid €57 Million in Income Protection Claims.
• On average, the 3,323 individuals who filed for Income Protection claims got €22,659 as they were unable to work due to illness or injury.
• One of the biggest claim payout that Irish Life paid last year was €297,000.
• Bank of Ireland, on the other hand, paid an average amount of €21,395 to its claimants.

Now imagine the loss of income that these people would’ve had to face had they not availed an Income Protection policy to cover them.

The Utility of Income Protection

There is often a tendency to overlook the apparent usefulness or utility of Income Protection. This is because most working professionals take what they conclude, is the more important form of insurance i.e. Sickness and Life. However, there is a major differentiating factor.

Serious Illness Cover encapsulates certain major illness which entails a good amount of medical expenditure and time on that specific illness. The illnesses related to income protection, though a minor irritant, can have a MAJOR impact of blocking your regular income.

The insurance proceeds from a Life Cover have its due importance to the family members, but at the terrible cost of the person no longer being alive.

Income Protection Cover, on the contrary, takes care of the family and the person while the person is alive. In that sense, it can be termed as a sort of “Happy Coverage” for the individual and his/her immediate family members.

It is a HIGH PRIORITY need for the self-employed to go for income protection since they are subject to the vagaries of irregular income and furthermore do not have social benefit coverage.

The Scope, Terms, and Conditions of Income Protection

The Income Protection insurance is applicable to all those persons who broadly fall into the following category:

A working individual having some form of income from a particular job or profession, and within the age group of 18 to 75 years.

The person is then affected by any form of illness that prevents them from working for a period of 4 weeks or more, thereby causing a stoppage of income.

The inability to work may be caused by ANY form of illness, health problem, injury or disability. The pre-defined illnesses do not come under part of this. The illnesses may include minor ailments like – headache, backache, stress or the more spread out cases like – fracture, stent, hip joint replacement, early chemotherapy, and also cover mental health.

The Amount Applicable and Other Clauses

The total coverage that the insured person can avail from the insurer will be equivalent to 75% of the total annual income.

The total insured payout amount of 75% takes into account the social benefit/medical allowance due and disbursed to the insured person. It will also consider income from any other sources. The final payout will be done post the deduction of social benefits and any other income or dividend.

For a simpler understanding of the calculations, here’s an example –

Say, Mr. Thomas has an income of €65,000 per annum.

He also qualifies a maximum illness benefit of €198 per week, amounting to €10,296 for the financial year.

Then, Mr. Thomas also gets income from renting his property leased at €9,000 per annum.

Then the total insured amount due will be:

€48,750 (75 % of €65,000) minus €10,296 minus €9,000 = €29,454.

The payout by most of the insurance companies will come in the form of monthly payments.

There will be something called as the Deferred Payments once the income protection insurance comes into effect. This is basically the time frame subsequent to when the pay-outs start getting disbursed. So basically, if the deferred payment is 4 weeks then the pay-out starts coming from the 5^th week. The insurance company will set a time or the due date before which the claims form is to be submitted to them by the claimant. This varies from company to company.

The time frame of the Income ranges from the age of 18 to the age of 75. The policy maturity plan can range from 3 years to 20 years. The same can be renewed when the maturity period approaches.

There are provisions to increase the insurance amount at the end of a certain time frame by a certain percentage “escalator” amount.

For e.g.  An income protection coverage of €72,000 can be escalated with a premium of 5% at the end its maturity period of 3 years and again by 5 % after 3 more years.

Exclusions and Other Restrictions applicable  

The Medical exclusion criteria to income protection include the following –

• Pre-existing medical conditions before the insurance approval
• Any chronic or life-threatening disease like – heart attack, kidney failure, stage 3 cancer and above
• Self-inflicted wounds
• Injuries caused by any criminal act
• Any critical body condition caused by self-neglect of health or addiction to life-threatening substances
• War-related injuries
• Normal pregnancy

Among the non-medical exclusions, is loss and lack of a job. This, crystal clear, DOES NOT qualify for income protection. The income protection scheme is initiated with the sole intention to protect those who have an income and the 75% clause is to incentivize employers to return to work.

Multiple policies from different insurance groups are possible but the combined insurance value cannot exceed 75% of the total income.

Selecting the right financial plan and the Insurance Company

As a qualified financial advisor and retirement planner, Adrian Murray has helped countless people set their finances right over a period of 10 years. Adrian and his team are dedicated to providing unbiased financial consultancy to all its clients in planning their entire income and all other coverage needs. We set the balanced mix of coverage schemes and recommend insurance companies based on their standing, the percentage of successful claims from the past financial years, and so on.

We also ensure that the companies we refer follow proper European Community standards and rules. Additionally, our recommended insurance conglomerates adhere to proactive and prompt customer service backed up with round the clock response management.

To know more about Income Protection and get yourself a cover, visit Murray Financial Services at https://mfs.ie or call 091 740700 now.