Income protection insurance

Income protection insurance explained 

Income protection insurance pays a regular benefit if you cannot work due to illness, injury or disability, usually covering up to 75% of your income until you return to work or the policy ends. This page explains who can qualify, how deferred periods work, what affects the cost and the differences between individual and group schemes, as well as what to check before buying cover, what alternatives exist and how to make a claim.

Who can get income protection insurance?

The criteria for getting income protection insurance are strict, so it can be difficult or expensive to get, depending on your occupation and health. Many insurers exclude certain occupations from their policies.

How does income protection work?

• Most policies pay out if you are unable to work due to illness, injury, or disability and do not have a second job.
• If you can continue working in a secondary job, you cannot claim on a policy for your primary job.
• You receive your benefit only after being unable to work for a set period, known as the ‘deferred period’.
• Common deferred periods are four, 13, 26, or 52 weeks
• Shorter deferred periods cost more
• Some policies may have no deferred period

Do you need income protection insurance?

You may need income protection if you:

• Are self-employed and would have no income if you could not work
• Have little or no sick pay from your employer
• Have no ill-health pension protection

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.

• Have dependants who rely on your income
• Have no other source of income
• Do not have sufficient benefits to replace lost income or cover expenses

What other benefits should you check before buying?

Social welfare illness benefit: Weekly payment from the State (not available if self-employed).

Social welfare disablement benefit: Weekly payment from the State (not available if self-employed).

Sick pay: Employer pays all or part of your wages for a time.

Serious illness policy: Can pay out on specified illness and can be a stand-alone policy or linked to a life policy. 

Ill-health retirement pension: 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.

How do you get cover?

You can buy income protection insurance:

• From an insurance broker, who can compare policies and help you choose the best option You may have to pay for their advice, so ask for the full cost in writing before agreeing to a contract
• Directly from an insurance company
• By joining a group scheme at your workplace. It is usually cheaper to join a group scheme

How much does income protection insurance cost?

Costs depend on:

• Your job – as some jobs are more risky than others (refer to the table below)
• Level of cover (usually a percentage of your income)
• Which 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
• Health and family medical history
• Lifestyle choices that impact your health, e.g. smoking or drinking

 Job classes and typical examples:

Class 1 jobs are lowest risk and pay the lowest premium while classes 2, 3, and 4 pay higher premiums.

Some insurers have a class 5 or D, which are usually refused cover due to high risk, e.g. Gardaí, farm workers, prison officers, but this may not always be the case

Class 1:

• Accountant
• Bank Official
• Solicitor
• Barrister

Class 2:

• Bookmaker
• Hairdresser
• Dentist
• Laboratory Technician

Class 3:

• Social Worker
• Locksmith
• Driving Instructor
• Non-Industrial Electrician

Class 4:

• Floor Layer
• Garage Mechanic
• Plumber

How much income will you get?

Individual income protection policies:

You choose the amount you want to be insured for when you take out the policy. There is usually a maximum you can insure, set out in your policy terms and conditions. The maximum claim is typically 66% or 75% of your earnings before you became ill or disabled.

When you claim, the insurer will deduct any sick pay you receive from your employer, single person’s social welfare illness benefit (if you qualify) and any other income you get while out of work.

Group income protection schemes:

• If you are insured through a group scheme (for example, through your employer), you will receive the proportion of your earnings stated in the group policy.
• The insurer will deduct any sick pay you receive, social welfare illness benefit and any other payments you get while out of work.
  

How long does your benefit last?

Your benefit payment usually stops when:

1. You return to work
2. 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
3. The insurer’s medical officer, who may check your medical condition from time to time, decides whether you are fit to return to work
4. You pass away

How much tax relief do you get on your protection premium?

Tax relief on income protection premiums is as follows:

• You can claim tax relief on your income protection premium at your highest (marginal) rate of tax.
• The relief applies to premiums up to 10% of your total annual income.
• This tax relief can make your premium more affordable.

Important to note:

• If you make a claim, any benefit you receive from your policy will be taxable.

How do you claim tax relief?

If you have an individual policy:

• Your insurance company will provide a statement showing the premiums you have paid.
• You need to include this information with your annual tax return to claim the relief.

If you are a member of a group scheme:

• Your employer usually deducts your premium from your salary before tax.
• In this case, you do not qualify for additional tax relief, as the benefit is already applied through payroll.

What are the alternatives to standard income protection?

The following products are types of income protection that offer less cover than standard income protection. They have fewer eligibility requirements, so they are generally cheaper and easier to get.

• Bill cover ensures main bills (rent/mortgage, household bills) are paid if you cannot work due to illness or injury. Provides up to 40% of income, max €2,000 (single) or €4,000 (with partner).
• Wage protector is designed for people in income protection classes 3 and 4, where premiums are typically higher due to the nature of their jobs. Health and lifestyle factors are also considered for all applicants, regardless of job class.

Wage protector pays an income for up to 24 months, or longer if medical tests confirm you are severely disabled and unable to work and you pass a functional assessment test.

How do you make an income protection claim?

Steps to follow:

1. Check your deferred period. When you take out an income protection policy, you choose a ‘deferred period’. This is the length of time between when you become unable to work and when your policy benefit becomes payable. Deferred periods typically range from 13 to 52 weeks. Deferred period may tie in with your work's sick pay scheme which might be three months full pay and three months half pay. You cannot make a claim or receive payments during this deferred period.
2. Complete a claim form. Fill out all details 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.
3. Get your paperwork in order. Submit supporting documents (medical certificates, proof of earnings, assessments). Your insurer or broker will advise you of what is required.

How do you cancel your income protection policy?

To cancel your income protection policy, first ask your bank to stop the direct debit to your old insurer. Then, contact your insurance provider to make sure the direct debit has been cancelled.