Income protection is a safety blanket in the event you are unable to work due to illness or injury. In this guide, we will discuss 9 key considerations to take when looking at income protection policies.
This is the sixth guide in our seven part series on income protection. You can find the other articles linked below.
Here at bonkers.ie we know that choosing the right income protection cover can be both time-consuming and confusing, so we’ve tried to make it easier!
In this guide, we will outline the main considerations to make when looking at taking out income protection insurance.
Before we proceed, let's have a quick refresher on what exactly income protection insurance is.
What is income protection?
Income protection is a form of life insurance that pays out monthly in the event you are incapable of working due to long term illness or injury. It continues to pay out until you can return to work, ensuring that you can continue to cover your expenses.
Even though you may get sick pay, or have a savings buffer, income protection is designed to protect you in the event that you suffer a medium to long term illness or injury. Income protection payouts are also subject to tax relief.
While you’re getting monthly income, you don’t pay any premiums to the provider. When you recover and get back to work, you start paying premiums again.
Now, let's have a look at the main considerations to make before you take out income protection insurance.
1. The amount of cover you need
You can cover up to 75% of your gross salary. This figure is also minus your personal rate of state social welfare illness benefit, if you are entitled to it.
You do not have to cover the full 75% rate if you cannot afford the premiums.
However, you should consider your lifestyle and outgoings when deciding on your level of cover, to ensure you can claim enough in the event you cannot work.
It is important to note that income protection only covers earned income. This means that the income you get from savings, investments, pensions, or property cannot be factored in when calculating your income or benefit level.
2. Your current employee benefits
Before you consider taking out an income protection policy, it is important to check if your employer already has cover in place for you. This is because some employers will provide their employees with income protection as a work benefit.
In these cases, the employer will pay the premium to the insurer, and sign it off as a business expense. In the event you need to make a claim, the insurance company will pay the employer, who will then pass the money onto you.
If they do, then make sure to find out the extent of the cover in place.
Oftentimes an employer may choose to pay a premium that only partially covers your salary so make sure to find out the extent of the cover that is in place. If you don’t you may be left financially vulnerable in the event of a claim.
To ensure your needs are met, you can always take out a personal policy to cover the rest. However, this add on must not exceed the 75% of income threshold.
3. Your occupation
It is important to consider your occupation when applying for income protection. The availability and premium cost of income protection varies depending on the type of work you do.
If you are in a job that is considered to be riskier than others or more accident-prone in the eyes of an insurer you will pay a higher premium for your cover. For example, a librarian will probably pay a lower premium than a scaffolding worker. This is due to the potential for workplace injury being higher in manual labouring jobs.
Additionally, if your work involves lots of driving or flying, this will also be factored into your premium as you are more likely to get into an accident.
Some professions, such as truck driving or labouring may not be accepted at all by certain providers.
If you work two or more jobs, you will pay the premium for the riskiest work you undertake. If some of the work you undertake is not valid for income protection cover, an exception will apply and any injury sustained in the riskier job will not be covered.
Any injuries sustained through criminal activity will also not be covered by insurance providers.
4. Your age
When looking to apply for income protection cover, it is important to consider your age before you apply.
This is because, as we age, we are more prone to long-term illness and injury. If you are older, you may have to pay a higher premium, or even have your application declined.
Insurers tend to have a cut-off age when they will stop offering income protection. If you are over 59, you are unlikely to be accepted for an income protection policy.
5. Your retirement age
Unlike other forms of life insurance, the term of your income protection policy will be determined by your estimated retirement age. This is because you can only receive income protection when you are in employment.
As a result, when you are taking out cover you must choose an expiry date that coincides with your expected retirement age. For instance, on bonkers.ie you will be given the option to choose from a selection of age ranges such as 55, 60, 65, or 70.
Remember to keep in mind your occupation when deciding on an expiry date for your policy, as certain occupations have lower expiry ages.
6. Pre-existing conditions and injuries
It is important to consider any pre-existing conditions or injuries you may have, as you will need to notify your insurance provider, as this can impact your premium, and may lead to certain exclusions.
Honesty is the best policy when it comes to any preexisting conditions, as it could lead to being denied a claim, or even invalidating your policy entirely.
Less severe conditions, such as mild asthma, will generally be covered by income protection without exclusions.
More severe conditions may be excluded from your policy, or lead to a higher premium to factor in the risk.
7. The wait period
The wait period, also known as the deferral period, is the length of time it takes for your claim to kick in once you are out of work.
You can customise this time, to say, coincide with the end of your employer's sick pay period, or the length of time it will take for your savings to be exhausted.
The waiting period can be set to anything from four weeks to up to a year.
The longer a wait period is, the lower the premium you will pay. However, insurers will be hesitant to offer four and eight week deferral periods - the standard length is 26 weeks, with the option to pay more or less for a shorter or longer period.
However, despite how tempting a lower premium may be, it is worth ensuring that your wait period is suitable for your situation, to ensure that you are not left short in the event of an accident or illness.
8. The cost of living
There are two optional extras you can add to your policy to help match the rising cost of living in the long term. The cost of living rises every year, more so in recent times, so increasing your cover every year to ensure your payout is enough is a wise decision.
These two options, indexation, and escalation in claim, are agreed upon when you take out the policy. You can amend these options if you alert the insurer of a salary or job change.
Indexation
Firstly, indexation, also known as inflation protection, is something you can add to your policy to help combat the impact of inflation over time.
By adding indexation, your premium will increase automatically by 4% each year, and also adds 3% to your cover. This means that as prices rise, the amount you can claim will rise to ensure you can meet your expenses.
In our current economic environment, selecting indexation can help ensure you are covered correctly in the long run.
Escalation in claim
Escalation in claim is another form of protection against rising living costs. Unlike indexation, this kicks in once you are claiming money from your insurer.
If you are out of work for more than a year, the amount you are paid will increase by an agreed amount, to help you cover rising living expenses.
You have the option of selecting one, both, or none of these additional protections.
9. Smoking habits
Smoking will put you in a higher risk category, as it increases your chances of becoming sick in the long term.
Therefore, your insurance provider will increase your premium by 50% automatically to account for this heightened risk.
You are considered a smoker in the eyes of an insurer if you have consumed any tobacco, e-cigarettes, nicotine replacement products, or vapes in the last twelve months.
If you have not used these products in the last 12 months e, you will be able to avail of the lower non-smoker rates. However, you may have to have a cotinine test in order to prove this.
Although it may seem tempting not to disclose your smoking status to your insurer in order to avail of a cheaper premium, your policy will be void and you will not be able to make a claim if you are unable to work due to a smoking-related illness.
Remember honesty is the best policy in these situations.
Get the best value income protection insurance on bonkers.ie
Do you now feel like you’re ready to take out income protection insurance? You can do so right here on bonkers.ie!
Simply head over to our income protection comparison page, fill in a few details, and then review income protection policies from Ireland’s leading insurance providers.
You could find the right policy for you and be covered in under an hour!
You can also easily compare a variety of other insurance types too on bonkers.ie, including mortgage protection insurance, life insurance and home insurance.
Don’t forget to review other everyday household bills too and compare available deals for services such as energy, broadband and banking products to see how much you could save by switching to another provider.
Take a look at our other income protection guides
If you found this guide helpful, make sure you check out the other income protection guides in our series. You may be interested in the following:
- Checkout our Quickstart guide for a general summary and links to other income protection guides.
- Unsure of how to use our income protection service? Check out our guide on how to compare income protection on bonkers.ie
- If you change your mind about your income protection policy, don’t worry. Here we outline the cooling-off period and how to cancel your policy.
- Still have questions? Check out our guide answering the most common questions on income protection.
- Not up to speed on income protection related jargon? Look at our guide explaining the essential terms.
- Want the general lowdown on what income protection actually is? Check out our guide explaining it.
Any questions?
If you have any questions about any of the points discussed in this guide, or about income protection in general, contact our team today on Facebook, Twitter, or Instagram.
