Illness, injury, depression, or pregnancy complications can stop you from working. Illness benefit and state benefits become your only income while you recover. What do you do when the sick pay runs out? What happens when state benefits are not enough? Income protection cover is the only answer.

If you work for a living, you will need income protection. Whether you are self-employed or working in the public or private sector, there will come a time when you are unable to work. How much income protection cover you need is the next question.

How does it work?

Jimmy is on an income of €40,000 per annum at his warehouse job but gets ill and is unable to work. The most he will get on state benefits is €10,555 per annum. Jimmy’s claim for state benefits is deducted from the €40k, leaving him with a shortfall of €29,445 from his original salary.

It is from the €29,445 that the 75% rate is calculated, giving Jimmy an annual income of €22,084 from his income insurance cover.

If you take out a lower rate of income protection cover, you will receive less when unable to work.

You will still pay income tax

Revenue looks at your income insurance cover pay as they do your salary. You will still be liable to income tax. Your tax affairs will, in most cases, stay the same, but you may need to confirm everything with Revenue before committing to a policy.

You must consider this when doing any calculations. Losing any amount of a salary is never nice, but you will need to plan and budget for it with your policy.

All those outgoings

Think about your outgoings. There’s the car loan, the rent or mortgage, the kids’ school or college fees, other loans, and then there’s the small matter of putting food on the table. You still haven’t thought about the social life or new clothes for the summer.

It all costs money, and you need an income to have that money to spend. Maybe a helpful income protection calculator will help?

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How much income protection cover do you need?

How much is enough? Do you choose a random figure and hope for the best? Do you go with the first provider that comes along because they offer good deals? The best way to find the answers is not to decide until you know more about income protection insurance. 

Let’s take a closer look at what you need to know.

What is income protection cover?

Income protection cover is insurance for when you are unable to work.

You pay your monthly premiums, and when sick or suffering an injury, you claim on the policy. How much you pay and how much income you receive are in the policy details.

Cover you hope you will never need

You have the insurance for the dark days when the unexpected happens. Like car or home insurance, you buy an income insurance policy but hope you will never need to claim on it. You pay the monthly premium for cover when you are unable to work, something no one really wants to face.

How about sick pay or state benefits?

Both sick pay and state benefits usually stop or are reduced after only a few months – not much good when you are seriously ill. No one wants to find themselves unable to work and not afford to live, and this is where income protection insurance comes into play.

All you need to decide is how much income protection cover is enough?

How to decide how much income insurance cover is enough

It is never easy to decide how much is enough, especially when it comes to your monthly income. We all think we can get by on a certain amount, but soon reality bites, and you realise just how much you spend each month.

The income protection 75% rule

An income protection insurance policy pays a maximum of 75% of an existing salary after deducting state benefits. The simple equation, (salary – state benefits) by 75%,  gives what you can expect to earn from a policy. 

To make this a little clearer take the case of Jimmy.

Use an income protection calculator

Our income protection calculator will help you decide how much income insurance cover you need. Designed to be accurate, while simple to use, it is an excellent guide to helping you determine a monthly income figure.

How to calculate income protection

The income protection calculator takes into account your current status and helps us advise you on what cover you will need. Premiums vary according to age, medical history, job type and salary and even if you are a smoker or non-smoker.

Any premium you pay will reflect your needs and what income you reckon will get you through each month.

Honesty is the best policy

When filling out any income protection paperwork, or calculator, always be as honest as possible. Do not lie or convince yourself that you can get by on less. Remember, people are often off sick or injured for much longer than expected. 

How will you get by for six or eight months on a fraction of your salary?

The higher your salary, the higher the premium

You are essentially insuring your salary when you take out income protection cover. If an illness, injury, or whatever makes you unable to work, you will be looking to replace it with your income protection cover.

It is a simple rule that the more you have, the more you spend. When life is good and you are earning a nice salary, the chances are that you will have higher outgoings. The gym membership, the subscriptions, and the nice clothes all cost money, and you will want an income to match that lifestyle.

The more of an income you wish to have, the closer to that 75% figure above, the higher will be your premium. The good news here is that income insurance premiums are tax-deductible, which may reduce some of those extra costs.

Does income protection cover redundancy?

No, it does not cover redundancy.

Income insurance is for when you are unable to work, not for when you don’t work. There are strict protocols around any insurance claim, and it is not any different for income protection cover.

Income protection for the self employed

If you are among the 340,000 self employed workers in Ireland, you are taking a major risk by not insuring your income. Self employed workers are very venerable as if they get injured or sick, they may loose an income stream.

Visit our industry page to see if your industry is insurable today!

How about illness and income protection for depression?

Yes, income protection cover can pay you a wage when you cannot work due to illness. It should not be a serious-illness-only policy but always check with your broker. If you cannot work due to illness, then a doctor’s cert or similar will usually be enough to trigger a valid claim.

The same is true of depression, including post-natal depression. Enduring prolonged periods of depression can make you unable to work. For some people, the stress of work makes their condition worse, and they may need a period of rest. Income protection will cover you for depression.

Pregnancy complications and post-natal depression are also covered by an income protection insurance policy. Any condition which makes it unsafe for you, or your unborn baby, to come to work should qualify for income insurance cover.

What happens when my income increases?

A very important question and one that many people forget to ask their broker. When you get a wage increase, you’re happy with that extra in the bank account each month. You will probably spend more too, as we all do. Have you insured the increase, though?

You need to review your income protection cover each year. If your income increases, you will need to increase cover but make sure you have a policy that permits it. Allowing for inflation, very much in the news at the moment, should also be in your income protection policy.

Remember you are insuring your income for when you are unable to work. You never know when that day will come.

What’s a deferred period?

Every income insurance policy has a deferred period. It refers to the time you must wait before making your claim. A deferred period can be a minimum of four weeks, or up to a year and more, depending on your circumstances.

When looking at how much income protection cover you need, the deferred period clause is very important. You must decide how long you can survive financially before calling on the income insurance.

The longer the deferred period, the lower the premium, but can you get by on state benefits until the time passes?

Income insurance is not mortgage protection

A very big distinction. You claim on your income protection cover when unable to work but will your mortgage protection insurance also cover your repayments? It is unlikely to unless you have a very serious illness.

Income protection cover is for your salary only. 

It is not mortgage protection, and you will still need to pay your monthly mortgage. When using the income protection calculator, ensure you include mortgage or rent payments for an accurate idea of the cover you will need.

The benefits of income protection cover

Now you know more about income protection cover, hopefully, you will also see the benefits. 

If you have a serious injury, fall ill unexpectedly, or a relapse of your depression, you will be unable to work but still need your income. 

You claim income protection insurance when you are unable to work.

The benefits of income protection cover are that it will see you through until you are back on your feet again. You will be able to pay the bills, cover your mortgage and put food on the table. It is difficult enough when you are unable to work, so do not add the stress of money to the mix.

Invest in the right income protection cover today.

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At Insure Your Income we know what happens when you are unable to work. Your income dries up, and soon you are digging into any savings you have at hand. With the right income protection insurance policy, you can insure your income. 

When the time comes you’ll be glad you did, and you will see the benefits. Contact Insure Your Income today for all your income protection cover needs.

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