Are you protecting your most valuable asset?
When I ask most people what their biggest asset is, the chances are they’ll say it’s their home. In some cases this might be true, but for the vast majority of us our greatest asset is our Income. Stop for a minute and think of the many different types of Insurance you may currently have, Car insurance, house insurance, health insurance maybe even pet Insurance. What pays for all of these? Your salary, yet is it Insured?
85% of the Irish workforce don’t have any form of Income Protection and will be relying on their employer or the state to continue paying them if they are unable to work.
Lots of employers don’t provide any form of sick pay and for those who do, the majority will only pay you for six months.
Taking into consideration, the State Disability Allowance is currently a maximum of €203 per week. Could you live on this €203 per week (presuming you are entitled to it)? Could you live with a 40 – 80% drop in your income?
It may surprise you to know that many people in Ireland will be out of work for more than six months through illness or injury. What would happen if you were one of them?
What if you were to have an accident or long-term illness that prevents you from earning a living?
That’s where income protection comes in. It gives you an alternative income while you’re unable to work due to an accident, injury or illness. It can ensure your lifestyle doesn’t have to change if illness strikes and it can be used to pay your bills and living expenses until you are able to return to work, or if not, until your retirement.
Income Protection can replace up to 75% of your usual income less any social welfare payments when you’re off work due to illness or injury.
You pay a monthly premium determined by your age, occupation and health status. If you are absent from work due to illness or injury, your chosen Insurance company provides you with a replacement income until you return to work, or until your chosen retirement date if you’re not fit to return to work before then.
For some people, their employer will pay them for a period at the start of being out of work due to Illness/Injury. It’s after that, you need the cover most. For example: if your employer will pay you for a six month period while you are unable to work then you should choose your deferred period as 26 weeks. A ‘Deferred Period’ is the length of time between when you were last at work and when you start receiving a benefit. You can select Deferred Periods of 8, 13, 26, or 52 weeks.
Tax relief on your premiums
Use your tax bill to start paying for some of your Insurance costs.
Income Protection is the only type of Insurance on which the Government will give you tax relief at your marginal rate of tax against the premium, this in itself tells you just how important this type of cover is.
TIP: Ask your employer what their sick pay rules are. If they confirm that they’ll pay you full pay for a certain period, you won’t need your
Income Protection benefit to kick in until after this time.
How would you cope financially if you were unable to work due to an accident, injury or illness? Would you have a replacement income in place? Take a moment to think about how you would pay these normal household bills without an income So protecting it makes sense!
Barry Kerr BBS QFA CFP® is the owner of Wealthwise Financial Planning, Block C, Hartley Business Park, Carrick on Shannon, www.wealthwise.ie. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.