Income Protection & Serious Illness
Most people put significant time and resources into considering how they will protect their assets in retirement to allow them live the type of lifestyle they require. For an individual still in the working environment a more pertinent question is what do you need to do in order to protect your lifestyle during your working life? In the current economic climate there is no doubt that many people now realize their most significant asset is their income.
Serious Illness and Income Protection (Permanent Health Insurance)
How would your financial circumstances be effected, if you or your spouse were unable to work due to prolonged illness or injury? In addition to having to meet your regular mortgage payments and household bills, your family could face enormous financial strain due to loss of earnings, increased medical expenses and possibly ongoing medical care.
If you were unable to work and your earnings ceased, would you be able to survive on the current State Disability Benefit of €197.80 per week? If you are Self Employed or a Proprietary Director, you may not even be entitled to the State Disability Benefit!
There are however, two types of insurances that can help alleviate this financial strain. They are Serious Illness cover and Income Protection
- Serious Illness Cover is a lump sum benefit, payable on diagnosis of a serious illness as listed and defined in the policy conditions of the life company with whom you have effected the cover. It is therefore important that when considering this type of product you take into account factors other than cost. As authorised advisors DHKN Life & Wealth are here to ensure that you take out the policy appropriate to your requirements and circumstances.
- An Income Protection policy provides an income should you be unable to work at your own occupation or any other occupation which you are suited to or trained for, due to sickness or disability lasting longer than the deferred period under the contract. The benefit is normally payable until you are fit to return to work or the ceasing age of the policy, which is normally written to retirement age 60 or 65.
Serious Illness Cover and Income Protection are very different in terms of method of payout, tax relief, underwriting etc. The following graph illustrates how each type of cover differs which is designed to give you a guide on which cover is suitable to you. However, individuals may have a requirement for both Serious Illness Cover and Income Protection
|
Difference between Serious Illness Cover & Income Protection |
Type of Benefit Payable |
Tax Relief on Premium |
Limitations on Benefit Payable |
|
Serious Illness Cover |
Payable as a once off lump sum benefit on diagnosis of a serious illness | Not available | The Serious Illness giving rise to the claim, must be specified and as per the definitions in the list of serious illnesses covered under the contract |
|
Income Protection/ |
Payable either weekly, monthly or yearly as a taxable regular income until claimant is able to return to work | If paid personally, tax relief is available at your marginal rate. If paid by employer, tax relief is available at corporation tax rate |
Claimant only needs to suffer loss of earnings as a result of sickness/injury. Maximum payout is 75% of salary, less State Disability Benefit (not applicable to self employed). Policy benefits can be capped e.g. say at €175,000 p.a. depending on the policy/insurance company chosen There is a continued loss of earned income test to qualify for payment. In certain circumstances, lump sums received from other sources, if excessive, e.g. a serious illness claim, may impact on the amount of benefit payable. |
How is Income Protection different to a Critical Illness / Serious Illness Policy?
Serious Illness policies only cover a specified number of illness where as Income Protection covers any illness, injury, accident or disability that prevents you from working.
Serious Illness pays a once off lump sum and your Income Protection Policy pays a regular income until you are able to return to work or until the end of the policy term.
You can only claim once with a Serious Illness Policy, however you can claim as many times as is necessary on an Income Protection Policy.
How long will I be paid the Income Protection Benefit for?
The Income Protection Policy will continue to pay you an income until:
You return fully to your normal occupation or an equivalent occupation, or the policy expires normally age 55, 60 or 65 (you choose this when taking out the policy), or Death.
You may be entitled to a proportionate benefit if you do not qualify for the full Income Protection benefit where:
You are not totally disabled by reasons of sickness or accident to fully carry out your normal occupation. You may be able to do part of your normal occupation, however you normal salary has been reduced.
You are totally disabled from carrying out your normal occupation, however you are able take up a different occupation but suffer a reduction in salary.
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