Income protection insurance

Most income protection policies pay out a benefit if you are unable to work due to an illness, injury or disability, 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 be unable to make a claim on an income protection policy you have on your primary job.

You get your benefit only after you have been unable to work at your job (and are not working at any other job) for a certain period of time. This is called ‘the deferred period’. When you take out your policy, you can choose what deferred period you think would suit you best, typically four weeks, 13 weeks, 26 weeks or 52 weeks. If you choose a deferred period of four weeks, which means you must be unable to work for four weeks before the income protection payments begin, it will cost more than if you chose 13, 26 or 52 weeks. Some policies may have no deferred period. 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.

You may need income protection if you:

• Are self-employed and would have no source of income if you couldn’t work due to illness or disability
• Have little or no sick pay from your employer
• Have no ill-health pension protection
• Have dependants who rely on your income
• Have no other source of income
• Do not have sufficient benefits to replace your lost income and/or cover your expenses

Before you take out income protection, you should check if you are entitled to other benefits, which may mean you don’t need income protection insurance:

• Social welfare illness benefit: a weekly payment you may get from the State. It is not available if you are self-employed
• Social welfare disability benefit: a weekly payment you may get from the State. It is not available if you are self-employed
• Sick pay: your employer pays all or part of your wages for a time
• Ill-health retirement pension: this lets you take early retirement with a pension if you become permanently unable to do your job. If you are a member of an employer pension scheme, you may be entitled to get this type of pension

You can buy income protection insurance from:

• An insurance broker who can look at all the policies on offer and help you choose the one that suits you best. You may have to pay for this advice, so ensure you get the full cost in writing before you agree to enter into a contract with the adviser
• Directly from an insurance company
• You may be able to buy this cover by joining a group scheme at your workplace. It is usually cheaper to join a group scheme.

Costs usually depend on the following:

• Your Job – as some jobs are more risky than others (see table below)
• Level of cover (usually linked to a percentage of your income)
• Deferred period you choose
• Term of the policy
• Age – as you get older, income protection will cost more and a new policy may have more exclusions, particularly if your job or state of health have changed
• Your health
• Your family medical history
• Lifestyle choice that may impact your health i.e. smoking or drinking

Classes of jobs: Typical examples

The above classifications are typical examples of the type of jobs that fall within each class and are subject to change. Always check with the insurer when making an application as each one is reviewed on a case by case basis. People with jobs that fall within ‘Class 1’ are considered the lowest risks and would pay the lowest premium. Those with jobs that fall within Classes 2, 3 and 4 usually pay a higher premium. Many insurers may include a class 5 or a class D in their tables which usually means jobs that fall within this class will be refused cover as they are considered too high a risk. Occupations such as the Gardaí, farm workers and prison officers are generally declined by insurance companies but this may not always be the case.

If you have an individual policy, you can set the amount you want to be insured for when you take out the policy. There will usually be a maximum amount you can insure. The policy terms and conditions will tell you the maximum amount you can claim. This is usually 66% or 75% of your earnings before you became ill or disabled, less any other income you get while out of work, such as sick pay, and single person’s social welfare illness benefit – if you are entitled to it.

If you are insured through a group scheme, you get the proportion of your earnings stated in the group policy, less any other payments you get when out of work. These payments may include sick pay or social welfare disability benefit.

Usually your benefit payment stops as soon as one of the following happens:

• you return to work
• you reach age 55, 60 or 65, depending on the policy. This is called the ‘benefit cessation age’. This should be no later than your planned retirement date
• the insurer’s medical officer, who may check your medical condition from time to time, decides that you are fit to return to work
• you pass away

You can get tax relief on your income protection premium at your marginal (highest) rate of tax, up to a yearly limit of 10% of your total income. This can make your premium more affordable, but remember your benefit will be taxable if you make a claim. If you have an individual policy, your insurance company will give you a statement showing the premiums paid. To claim your tax relief, you need to include this information with your tax return. If you are a member of a group scheme, your employer usually takes your premium from your salary before tax. In this instance you would not qualify for tax relief.

The below products are types of income protection that offer less protection and require less criteria than standard income protection and therefore are cheaper and easier to get cover.

Bill cover: bill cover is designed to ensure that the main bills, i.e. rent/mortgage and household bills, are covered in the event that an individual cannot work due to illness or injury. Bill cover provides up to 40% of an individual’s income to a maximum of €2,000 for single cover and €4,000 for cover including a partner.

Wage protector: wage protector is designed for those whose occupations fall into classes 3 & 4 for income protection. The premiums for those in class 3 & 4 can be quite high based solely on their employment, though health and lifestyle factors are also considered regardless of job class. Wage protector will pay out an income for 24 months or longer if medical tests show that you are severely disabled and unable to work and pass a functional assessment test.

If you are out of work due to illness or injury and have an income protection policy in place, there are a number of basic steps you should follow when making a claim:

• Check your deferred period: when taking out an income protection policy, you will have set out your ‘deferred period’. The deferred period is the length of time between you being unable to work and the policy benefit being payable. Deferred periods tend to range from 13 to 52 weeks. If you are still within your deferred period, you will be unable to make a claim.
• Complete a claim form: you will need to submit a claims form to your insurer when making a claim. Remember to complete the forms as accurately as possible to avoid delays or refusal of your claim. If you are unsure of any information requested on the form contact the insurer or broker.
• Get your paperwork in order: when making a claim on an income protection policy, you will be required to submit documentation to support your claim. Examples include medical certificates, proof of earnings, medical assessments etc. Your insurer or broker will advise you of what is required.

If you are cancelling your income protection policy you will need to cancel the direct debit to your old insurer. To stop a direct debit, you must cancel it by writing to your bank. You should also contact the third-party supplier – in this case your old insurance provider, to make sure that the direct debit has been cancelled.