Have you ever wondered what you would do for income in the unfortunate event you fall ill or suffer from an injury?
Thankfully, there are measures you can easily put in place to prepare for a scenario like this, such as taking out an income protection policy. This will provide you with peace of mind knowing expenses will be taken care of if you cannot work.
This is the final guide in our seven-part series on income protection. In this article, we take a look at what exactly income protection is, who should take out an income protection plan, and what the benefits are.
What is income protection insurance?
Income protection is a type of life insurance policy that pays you money monthly if you cannot work due to a medium to long-term illness, injury, or disability. The money will be paid out until you are fit to return to work again.
Income protection insurance can also be known as ‘permanent health insurance’, however, it should be noted that it is a different form of cover than private health insurance.
You can use the money to pay your bills, mortgage repayments, weekly food shop, or cover expenses you might incur due to medical treatment.
Who is eligible for income protection?
To be eligible for income protection insurance, applicants typically need to work full-time or be self-employed. Income protection does not cover redundancy.
You must also be within a certain age limit to get income protection. Cover can start between 18 and 59 and go up until you reach 70 with some providers.
How does it work?
The purpose of income protection is to act as a replacement for your monthly income should you become too unwell to work and you do not have a second job.
If you are able to continue to work in a secondary job despite your illness, injury, or disability you will not be able to claim on an income protection policy you have on your primary job.
If you make an income protection claim, you will only receive money after you have been unable to work for a certain period. This is known as ‘the deferred period’.
You can choose what deferred period you think would suit you best when you take out your income protection policy. Typically there are deferred periods of four weeks, eight weeks,13 weeks, or 26 weeks.
The shorter your deferred period, the more costly your policy will be.
Before deciding on which deferred period to opt for, check if your employer offers sick pay and if so, how much and for how long.
Who needs income protection?
While not everyone may need income protection, you may need it if you:
- Are self-employed and would have no source of income if you couldn’t work
- Have dependents who rely on your income
- Have little or no sick pay from your employer
- Have no ill-health pension protection
- Have no other source of income
- Do not have sufficient benefits to replace your lost income and/or cover your expenses
Before taking out an income protection policy, it’s a good idea to check and see if you are entitled to other benefits you could rely on instead, such as:
- Sick pay: Your employer pays all or part of your wages for some time.
- Social welfare illness benefit: This is a weekly payment you may get from the State. It is not available if you are self-employed.
- Social welfare disability benefit: This is also a weekly payment you may get from the State. Once again, it is not available if you are self-employed.
- Ill-health retirement pension: This lets you take early retirement with a pension if you become permanently unable to do your job. You may be entitled to this if you are a member of an employer pension scheme.
How much does income protection cost?
How much your income protection policy can cost will depend on several factors, including:
- Your job: Some jobs are deemed riskier than others
- Cover level: This is typically linked to a percentage of your income
- The deferred period you pick
- The term of the policy
- Your age: The older you get, the more expensive income protection will be. A new policy may have more exclusions, usually if your job or state of health has changed
- Your health
- Your family medical history
- Your lifestyle choices: For example, smoking or drinking habits
How your job can impact your income protection policy
Your job can affect whether or not you’re eligible for income protection.
Occupations are given a class rating, typically ranging from 1 to 4. Class 1 jobs are deemed the lowest risk in relation to sickness or injury so the monthly premiums will be lower. For example, solicitors, accountants, and computer programmers.
Class 4 jobs may include plumbers, garage mechanics, and floor layers. People in these types of occupations will pay more for their premiums because they may be more prone to injury, therefore posing a higher risk than an office job etc
Many insurers may include a class 5 or a class D in their criteria tables. If your job falls into one of these categories, you may be refused cover as they are considered too high a risk.
Generally, insurers decline cover for occupations such as police officers, farm workers, and prison guards. However, this may not always be the case.
We’d recommend that you check with the insurer when making an application, as each applicant is reviewed on a case-by-case basis.
How much income will you receive should you make a claim?
If you take out an individual policy, you can set the amount you want to be insured for. There will usually be a maximum amount you can insure, which is 75% of your income.
Insurance providers set a maximum yearly limit on the amount you can claim e.g. €250,000.
The amount you receive will also depend on whether you take out a personal income protection plan, or if you get an executive income plan through your employer.
Does income protection cover pre-existing conditions?
It’s possible to get income protection cover for a pre-existing condition. Depending on the condition you have, you may need to pay more for your premium or have an exclusion added to the policy.
If you make a claim, how long does the benefit last?
Your benefit payments will stop as soon as:
- You return to work again
- You reach a certain age that is stated in your policy, such as 55, 60, or 65, known as the ‘benefit cessation age’
- The insurer’s medical officer decides that you are fit to return to work
- You pass away
Can you make more than one income protection claim?
With income protection, you can make multiple claims on the same policy.
This means if you make one claim and recover, then fall ill again at a later date, you can receive benefits again.
Additional benefits that can be included in your policy
Some insurers may offer additional benefits within your policy, while others will allow these to be added on for an additional fee.
Extra benefits can include:
- Premium waiver: If you’re too ill to work and you are in receipt of a claim, then the insurer gives you a break from your monthly premiums until you return to work.
- Guaranteed increase option: This allows you to increase the amount of cover you have if your circumstances change, without having to answer any additional questions about your health. This can benefit those who become a parent, get married, or buy a home.
- Return to work benefit: When you return to work after being off for a certain period of time, such as 12 months, you will receive extra financial support for a set period.
- Hospital benefit: If you have to be hospitalised during the deferred period, you’ll get a daily income for each day you spend in the hospital, up to a maximum number of days.
- Specified illness benefit: A tax-free lump sum is paid out if you’re diagnosed with a serious illness listed in your policy.
- Terminal illness benefit: If you've been diagnosed with a terminal illness and have less than 12 months to live, payments will begin right away.
- Life cover benefit: A lump sum is paid out if you die during the term of the policy.
- Occupation change: If you change occupations, your plan will continue even if you move into a higher-risk job class.
- Partial benefit/proportionate payment: This can provide you with a partial benefit if you return to work on reduced earnings.
Review your policy details
We’d recommend reviewing policy details before you commit to paying for income protection.
Some policies only cover you if you become severely disabled and are not able to carry out any paid work. It provides very little protection and before you could receive any benefits, you would have to be severely and permanently disabled.
Make sure you know what sort of policy you are getting.
Get income protection insurance on bonkers.ie
Now that you've gotten familiar with income protection at bonkers.ie, it's time to apply for an income protection policy with the help of our free income protection comparison tool.
Once you find the right policy for you, you can apply online through our website.
Don't forget you can also find the best value insurance policies across a range of different insurance types, such as life insurance, mortgage protection, home insurance, and car insurance on our site.
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.
- Find out how you can apply for income protection on bonkers.ie here.
- If you change your mind about your income protection policy, don’t worry. Here we outline the cooling-off period and how to cancel your policy.
- Still have questions? Take a look at our guide answering the most common questions we get asked about 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 before taking out an income protection policy.