Deciding to invest in an income protection policy could be one of the best decisions you can make should you become unable to work due to sickness or injury.
Income protection insurance is not a widely known product, so to help get rid of any confusion, we’ve answered the most frequently asked questions.
This is the fourth guide in our seven-part series on income protection. You can find the links to other guides in the series at the bottom of this article.
1. What is income protection insurance?
Income protection is a form of insurance that pays out up to 75% of your salary monthly (minus social welfare benefits) if you become unable to work due to injury or illness.
Once you make a claim, you will receive these monthly payouts until you are able to return to work. These payments can be used to pay for mortgage repayments, medical bills and your other regular outgoings.
To learn more about income protection, check out our guide on everything you need to know.
2. Do I need income protection insurance?
If you have dependents, medical bills, debts, or have rent or mortgage payments to make, income protection insurance ensures you can cover all these costs should you become unable to work due to a medium or long-term illness or injury.
Even if you have savings, or qualify for state benefits, income protection provides a stable, monthly income that will cover you until you’re able to return to the workplace.
However, before you consider taking out income protection insurance, you should check that your employer is not already providing you with some form of income protection cover.
3. How much cover do I need?
Experts recommend getting enough cover to ensure that you can meet your regular outgoings should you become unable to work due to illness or injury.
This could include any regular outgoings, such as rent, mortgage payments, grocery bills, or payments to dependents.
Therefore, taking out the maximum amount of cover is strongly advised. This cover amounts to 75% of your salary, minus the social welfare benefit.
Your employer may cover all or some of this, so check with them before deciding to take out a personal income protection policy. If they do not cover your entire income, you can take out your own policy to cover the rest of the 75%.
You can also add indexation and escalation in claim, to make sure your cover keeps up with the rising cost of living. We will discuss the details of this further down.
If you have a before-tax salary of €45,000, you can cover 75% of this amount which is €33,750.
You must then take away the amount of state illness benefit you would receive on this salary, which would equate to around €11,440 in 2023.
Once you minus the state salary from 75% of your salary, you will be left with €22,310 which breaks down to €1,860 a month that you can cover. This will be the amount of money you will receive from your insurer if you are unable to work due to illness or injury.
Remember, if you are self-employed, you won’t qualify for state illness benefit, so you will be able to cover the full 75% yourself.
4. How much does it cost?
Due to the amount of variables that determine your income protection premium, it is hard to give a comprehensive figure.
However, a rough estimate of the cost for the average healthy person on a basic policy is €80 to €100 a month in premiums. This could be higher or lower, based on a variety of factors we will discuss below.
The best way to assess the costs is to use our free comparison tool and arrange a call with one of our experienced financial advisors.
5. What influences the price of my premium?
There are many factors that influence the price of your premium, as income protection is designed to cover your unique circumstances. These include:
- Your salary: The cost of income protection is heavily influenced by your gross salary because the premium you pay is designed to cover your income. The more you earn, the higher your premium will be.
- The amount of cover you want: You can cover up to 75% of your income, minus any state benefits. While it is recommended that you try and achieve full coverage, you can decide to take out less, say if your employer already covers you partially.
- Your occupation: What profession you have will have a marked influence on your premium, due to differences in risks between various jobs.
- The deferral period: The longer you choose to wait before you receive a payout, the cheaper your premium will be. Alternatively, if you opt for a shorter deferral period, you will pay more. The standard deferral period is 26 weeks, but periods of 4 weeks to a year are available.
- Your retirement age: This decides how long you need the policy for, and therefore the premium you pay. The nearer retirement you are, the more expensive a new policy will be.
- Whether you smoke: If you smoke, or use nicotine replacement products, your premium will also increase by 50% automatically. You are defined as a smoker if you have used any tobacco or nicotine products in the last 12 months.
- Your health and age: Your medical history will be a factor in your premium, as people with a clean bill of health are considered less risky to the insurer. Additionally, as you age, you are more likely to pick up health-related issues, making your premium more expensive
6. Will my profession be accepted?
Insurers classify different types of work into four categories, with class one being the least risky to the insurer, and class four being the most risky.
- Class One: Non-manual, no driving, desk-based e.g. accountant, software engineer; or highly qualified professional work e.g. lawyer, architect, pharmacist.
- Class Two: Non-manual, customer-facing, may involve driving or time on your feet e.g. retail worker, sales representative; or veterinary or dentistry work.
- Class Three: Skilled, light manual work e.g. domestic electrician, carpet fitter; or those in caring roles e.g. teachers, social workers, nurses.
- Class Four: Skilled manual, not at heights or underground e.g. carpenter, plumber, bricklayer.
- Not Accepted: Some professions are not accepted at all for income protection. These include: unskilled heavy manual labour, operation of heavy machinery, work at heights, underground work, offshore work, and jobs in the sport or entertainment industry.
If you are unsure where your profession is classed it is always worth comparing policies and arranging a call with our qualified financial advisors to discuss your options.
7. What happens to my policy if my career changes?
You generally do not have to alert your insurer of a change in career.
However, if you believe that you have moved your risk class significantly, you should always alert your insurer. This is for two reasons:
- Exemptions: If you move from a low-risk job to a high-risk job, and do not alert the insurer, any injury or illness sustained in the riskier job may not be covered.
- Premium cost: On the other hand, if you move from a riskier job to a less risky role, you may be able to avail of a lower premium.
If your new career comes with a higher salary, you should consider contacting your insurer to adjust your policy to account for your rise in income, to ensure your cover remains sufficient.
At this time, you can also add or remove optional extras, such as indexation and escalation of claim, which you can’t normally do.
8. What extras can I add?
There are two additional extras you can add to your policy.
The first is indexation. By adding indexation, your premium will increase automatically by 4% each year, while your cover will increase by 3%. This is designed to take inflation into account, meaning that as prices rise, the amount you can claim will rise to ensure you can meet your expenses.
The second optional extra is escalation in claim. Unlike indexation, this kicks in once you are claiming money from your insurer.
If you are out of work for more than a year, the amount you are paid will increase by an agreed amount, to help you cover rising living expenses.
You have the option of selecting one, both, or none of these additional protections.
9. Can I add indexation and exclamation in claim to my policy at any time?
No, you can't.
These optional extras must be added when you initially purchase your policy.
You will not be able to add these extra benefits throughout the course of your term. However, an insurer may make an exception if a substantial change has occurred in relation to a salary increase or a major career change. It will depend on the insurer, it is important that you speak to them before your policy is underwritten.
When applying through our website, you can choose these optional extras before you see your results, so they are factored into your comparison.
10. What is the loading fee for smokers?
The loading fee for smokers is an instant 50% rise in premium.
Remember, even if you are not currently smoking cigarettes, you may still qualify for smoker status.
You are considered a smoker in the eyes of an insurer if you have consumed any tobacco, e-cigarettes, nicotine replacement products or vapes in the last twelve months.
If you have not used these products in the last 12 months, you will be able to avail of the lower non-smoker rates. However, you may have to have a cotinine test in order to prove this.
11. Will I have to do a health check during the application?
During the comparison progress, you will have to state whether you are in good health.
If you’re in good health then you generally won’t be required to undergo a medical examination in order to get cover.
However, as an insurer is responsible for calculating your risk to them, you may be required to undergo one depending on certain factors such as your age, previous medical history, and the amount of cover you’re hoping to take out.
When you call our team of expert insurance brokers, you will be required to answer some basic questions about your health. This call will take no longer than ten minutes.
12. Is it possible to have life, income protection and serious illness cover at the same time?
Yes, you can.
All of these insurance products cover different things, so having all of them will ensure you are covered entirely, for most circumstances.
Income protection cover is based on your salary, to ensure you are getting an income while unable to work. This is different from:
Life insurance: This product is designed to financially protect your loved ones should you die unexpectedly. You can find out more from our six-part guide series on life insurance.
Serious illness cover: This form of insurance pays out a tax free lump sum should you get diagnosed with a serious illness during the policy term. You can learn more about serious illness cover here.
Although it is possible to take out all of these insurance products at once, this could be expensive, and not strictly necessary. Therefore, carefully consider your options and personal circumstances when deciding on which policies to get.
13. Does the deferral period influence the cost of my premium?
Yes, it does.
The standard deferral period for income protection is 26 weeks.
If you elect to reduce your deferral period, to receive money quicker should you be unable to work, your premium will rise. It is worth noting that some insurers may not offer you 4 or 8 week deferral periods. This is to prevent fraud, or to stop people ‘gaming the system’ by taking out income protection and then quickly making a claim for something unknown to the insurer.
On the other hand, if you choose to increase the deferral period, your premium will be lowered.
14. What if I already have cover through work?
If you have an income protection policy through work, it is always worth checking the amount of cover you will receive from your employer. Income protection from your employer is known as executive income protection.
You can cover up to 75% of your salary with income protection. However, your employer may only cover a portion of this. To ensure you are properly covered, you can take out a smaller personal policy to cover the rest.
You should also check the deferral period and possible exemptions to any income protection offered by your employer, to make sure you are covered how you’d like.
15. Can I cancel my policy and get a refund?
You are free to cancel your income policy whenever you like, however, you may not be able to get a refund.
Whether you receive a refund from your insurer will depend on when you are cancelling it. If you cancel your policy within the cooling-off period of 30 days from when you receive your policy document, or from your start date (whichever comes first), you legally are entitled to a refund. This refund will be minus any administration fees.
However, if you cancel after the cooling-off period, the insurer is under no obligation to refund you, and your cover will simply cease.
16. Can I switch my income protection policy?
Yes, you can.
However, you will need to cancel your existing policy first. If you elect to go down this route, you should always ensure that your new cover is up and running before cancellation, as you could find yourself without cover.
We tend to advise that the best time to switch is when your policy is up for renewal, so if you are considering switching, make sure you are not signed up to auto-renew.
Get the best value income protection insurance on bonkers.ie
Now that we have answered all your burning questions about income protection, it is time to take out your income protection policy.
Simply head on over to our income protection comparison service, input the necessary information to review policies from Ireland’s leading insurers.
You could find the right policy for you and be covered in under an hour!
Don’t forget to review other everyday household bills too and compare available deals for services such as energy, broadband and banking products to see how much you could save by switching to another provider.
Take a look at our other income protection guides
If you found this guide helpful, make sure you check out the other income protection guides in our series. You may be interested in the following:
- Check out our Quickstart guide for a general summary and links to other income protection guides.
- Unsure of how to use our income protection service? Check out our guide on how to compare income protection on bonkers.ie
- Thinking of switching or cancelling your income protection policy? Check out our guide on cancelling your income protection.
- Not up to speed on income protection-related jargon? Read our guide that explains common income protection terms.
- Here are 9 things to consider when taking out mortgage protection.
- Want the general lowdown on what income protection actually is? Check out our guide explaining it.