Why do people take out income protection policies?

December 13, 2011

Any client that I have met with over the last 15 years in dealing with income protection policies has enquired about income protection or started an income protection policy because they are aware that if something happened to them that resulted in them being unable to work or earn their usual income, they would be in financial trouble. 

Whilst it is an issue being discussed at the moment, there is currently no legal obligation on an employer in Ireland to pay a member of staff if they are out sick.  Of course, some employer’s do, but that will always be limited to a certain amount of time, unless your employer has organised a group income protection plan.  A typical HSE contract for instance, allows for an employee, of whatever level, to receive full pay for 6 months, then half pay for the second 6 months and then nothing after the first year.  What if you had an illness or injury that resulted in you being out of work for 3 years?  Generally, people do not have enough savings to maintain all of their bills and their lifestyle for that amount of time.  Just because you are unable to work does not mean that your bills stop.  The average length of an income protection claim is for 5 ½ years.

An income protection plan is a very simple insurance policy that ensures you continue to have a regular income if you cannot work due to an accident, illness, injury or disability.  The premiums that you pay qualify for tax relief at the marginal rate (currently 41%), which also makes it a very affordable policy.

You decide how long after being out of work that you would like to start receiving your benefit – 4 weeks, 8 weeks, 13 weeks, 26 weeks or 52 weeks.  The longer you leave it, the lower the monthly premiums.  You should also match this time, known as the deferred period, up to how long you think you could survive financially using your savings or against how long your employers will pay you when out sick.  For instance, a HSE employee shouldn’t ever take out a policy that will pay them a benefit after 13 weeks if their employer is going to be paying them their full pay for the first 26 weeks of illness.  They would only be wasting their money.

To answer the initial question, people take out income protection policies for peace of mind.  They know that if something unforeseen happens to them that they will still have a regular income, which means they can still pay their bills.  It doesn’t have to cost too much.  There is always a balanced approach to structuring any insurance policy. 

Why not get a quote for your income protection policy today.  You can request your obligation free quote here or call an advisor on 1890 254 000.

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