What Is Income Protection?
When you are feeling strong and healthy it can be difficult to plan for an unpredicted illness or injury that could leave you out of work. Yet almost everything we have in life and almost everything we do every day depends on earning an income. How would you cope if one day if it stopped and you were unable to earn an income?
In many cases your income is one of your greatest assets. For example if you are age 35 and you earn €50,000 per year, to a Retirement Age of 68, you would earn €1.65 million in that time frame. As a result we feel your Income is well worth protecting against long term disability and should form an integral part of any financial plan.
Income Protection provides a regular income of up to 75% of your earnings for the period you are out of work, starting after your selected deferred period.
What you need to know...
WHAT WOULD I BE ENTITLED TO IF I COULD NOT WORK?
As an Employee
If you were out of work you would be entitled to a Disability Pension. From the 26th March 2018, this would equate to only €203.50 per week (€10,582 per annum). An Income Protection Plan can be put in place to supplement more of your income. With an Income Protection Plan you can replace up to 75% of your usual income (less any social welfare benefits which you are entitled to) when you are off work due to illness or injury. It is a simple tax efficient way to protect your income
Self employed people are most at risk. Up until the 01st December 2017 the self-employed were entitled to nothing, if they were out of work on long term disability. From December 2017 they are entitled to €198.50 per week of a taxable benefit (increasing to €203.50 per week from 26th March 2018). However, to qualify for the benefit you must need to be unable to work for a very long time. The criteria states you must have been have been incapable of work for at least 12 months and be likely to be incapable of work for at least another 12 months Or be permanently incapable of work. With an Individual Income Protection Plan you can replace up to 75% of your usual income when you are off work due to illness or injury. It is a simple tax efficient way to protect your income
HOW MUCH INCOME PROTECTION CAN I HAVE?
You can have any amount of income protection up to maximum of 75% of your earnings. Peavoy Financial Planning will advise you on the most suitable amount for your specific circumstances
HOW MUCH DOES INCOME PROTECTION COST?
The cost of income protection is dependent on a number of factors and each quote is client specific. These factors include age, smoker status, occupation, health, what deferred period you choose, whether cover is level or inflating, the cessation age etc. One tip however is the younger you elect to take it out the cheaper it is.
WHEN DOES MY INCOME PROTECTION BENEFIT BEGIN?
Before your income protection benefit is paid out you have to be unable to work for a certain period of time. This is known as the deferred period. When you take out the policy you decide what deferred period suits you best. The deferred period is typically one of the following; 4 weeks, 8 weeks, 13 weeks, 26 weeks and 52 weeks.
TAX RELIEF ON INCOME PROTECTION PREMIUMS
You are entitled to Tax Relief at your marginal rate (either 20% or 40%) on your Income Protection plan if it is an Individual Income Protection plan.
Example: Peter is paying a premium of €75 per month for his Individual Income Protection Plan. As a 40% Tax payer, he is entitled to relief at his marginal rate. This means that the real cost of his income protection plan will be €45 per month (after he claims his tax relief of €30 per month).
In the event that you have an Executive Income Protection Plan paid by your company. The plan is owned by the company and therefore tax relief is claimed at the corporate tax rate of 12.5%. This is claimed by allowing the income protection premiums as a deductible business expense in the end of year accounts.