What is income protection?
Sarah Rigney
Sarah Rigney
Staff Writer

Income protection insurance pays you a monthly income if you are unable to work due to an illness, accident or injury.

Have you ever wondered what you would do for income in the unfortunate event you fall ill or suffer from an injury? 

Thankfully, there are measures you can easily put in place to prepare for a scenario like this, such as taking out an income protection policy. This will provide you with peace of mind knowing expenses will be taken care of if you cannot work.

This is the final guide in our seven-part series on income protection. In this article, we take a look at what exactly income protection is, who should take out an income protection plan, and what the benefits are. 

What is income protection insurance?

Income protection is a type of life insurance policy that pays you money if you cannot work due to a medium to long-term illness, injury, or disability. The money will be paid out until you are fit to return to work again. Income protection does not cover redundancy.  

You can use the money to pay your bills, mortgage repayments, weekly food shop, or cover expenses you might incur due to medical treatment.

Income protection can also be known as ‘permanent health insurance’, however, it should be noted that it is a different form of cover than private health insurance. 

How does it work?

The purpose of income protection is to provide you with a replacement income should you become too unwell to work and you do not have a second job.

If you are able to continue to work in a secondary job despite your illness, injury, or disability you will not be able to claim on an income protection policy you have on your primary job.

Who is eligible for income protection insurance?

In general, to be eligible for income protection:

  • You need to be working full-time or be self-employed 
  • You need to be between the age of 18 and 59. However cover can continue until you reach 70 with some providers

The type of job you have can also affect whether or not you’re eligible for income protection.

How your job can impact your income protection policy

Your job can affect whether or not you’re eligible for income protection.

Occupations are given a class rating by all insurers, typically ranging from 1 to 4. Class 1 jobs are deemed the lowest risk in relation to sickness or injury so the monthly premiums will be lower. For example, solicitors, accountants, and computer programmers. 

Class 4 jobs may include plumbers, garage mechanics, and floor layers. People in these types of occupations will pay more for their premiums because they may be more prone to injury, therefore posing a higher risk than an office job etc. 

Many insurers may include a class 5 in their criteria tables. If your job falls into one of these categories, you may be refused cover altogether as they are considered too high a risk. 

Generally, insurers decline cover for occupations such as police officers, farm workers, and prison guards. However, this may not always be the case.

We’d recommend that you check with the insurer when making an application, as each applicant is reviewed on a case-by-case basis. 

Who needs income protection?

While not everyone may need income protection, you may need it if you: 

  • Are self-employed and would have no source of income if you couldn’t work
  • Have dependants who rely on your income
  • Have little or no sick pay from your employer
  • Have no ill-health pension protection
  • Have no other source of income
  • Do not have sufficient benefits to replace your lost income and/or cover your expenses

Before taking out an income protection policy, it’s a good idea to check and see if you are entitled to other benefits you could rely on instead, such as:

  • Sick pay: Your employer pays all or part of your wages for some time.
  • Social welfare illness benefit: This is a weekly payment you may get from the State if you're sick and cannot work. It is not available if you are self-employed.
  • Social welfare disability benefit: This is also a weekly payment you may get from the State if you have a disability that lasts at least one year and restricts you from working. 
  • Ill-health retirement pension: This lets you take early retirement with a pension if you become permanently unable to do your job. You may be entitled to this if you are a member of an employer pension scheme. 

Deferred periods

If you make an income protection claim, you will only receive money after you have been unable to work for a certain period. This is known as the 'deferred period’.

You can choose what deferred period you think would suit you best when you take out your income protection policy. Typically there are deferred periods of four, eight, 13 or 26 weeks. 

The shorter your deferred period, the more costly your policy will be.

Before deciding on which deferred period to opt for, check if your employer offers sick pay and if so, how much and for how long.

How much income will you receive should you make a claim?

If you take out an individual policy, you can set the amount you want to be insured for. There will usually be a maximum amount you can insure, which is 75% of your income. 

Insurance providers also set a maximum yearly limit on the amount you can claim e.g. €250,000.

The amount you receive will also depend on whether you take out a personal income protection plan, or if you get an executive income plan through your employer.

How much does income protection cost?

How much your income protection policy costs will depend on several factors, including:

  • Your job: Some jobs are deemed riskier than others and will attract higher premiums
  • Cover level: This is typically linked to a percentage of your income
  • The deferred period you pick
  • The term of the policy
  • Your age: The older you get, the more expensive income protection will be and the policy may have more exclusions 
  • Your health
  • Your family medical history
  • Your lifestyle choices: For example, smoking or drinking habits

Income protection premiums qualify for tax relief at your marginal rate. So if you are quoted a premium of €100 a month, the net cost to you will only be €60 if you pay tax at the 40% rate.  

Does income protection cover pre-existing conditions?

It’s possible to get income protection cover for a pre-existing condition. Depending on the condition you have, you may need to pay more for your premium or have an exclusion added to the policy.

However people with MS, diabetes, HIV, and heart issues will usually be refused cover outright. 

If you make a claim, how long does the benefit last?

Your benefit payments will stop as soon as:

  • You return to work again
  • You reach a certain age that is stated in your policy, such as 55, 60, or 65, known as the ‘benefit cessation age’
  • The insurer’s medical officer decides that you are fit to return to work
  • You pass away

Can you make more than one income protection claim?

With income protection, you can make multiple claims on the same policy. 

This means if you make one claim and recover, then fall ill again at a later date, you can receive benefits again.

Additional benefits that can be included in your policy

Some insurers may offer additional benefits within your policy, while others will allow these to be added on for an additional fee. 

Extra benefits can include:

  • Premium waiver: If you’re too ill to work and you are in receipt of a claim, then the insurer gives you a break from your monthly premiums until you return to work.
  • Guaranteed increase option: This allows you to increase the amount of cover you have if your circumstances change, without having to answer any additional questions about your health. This can benefit those who become a parent, get married, or buy a home.
  • Return to work benefit: When you return to work after being off for a certain period of time, such as 12 months, you will receive extra financial support for a set period.
  • Hospital benefit: If you have to be hospitalised during the deferred period, you’ll get a daily income for each day you spend in the hospital, up to a maximum number of days.
  • Specified illness benefit: A tax-free lump sum is paid out if you’re diagnosed with a serious illness listed in your policy.
  • Terminal illness benefit: If you've been diagnosed with a terminal illness and have less than 12 months to live, payments will begin right away.
  • Life cover benefit: A lump sum is paid out if you die during the term of the policy.
  • Occupation change: If you change occupations, your plan will continue even if you move into a higher-risk job class.
  • Partial benefit/proportionate payment: This can provide you with a partial benefit if you return to work on reduced earnings.

Review your policy details

We’d recommend reviewing policy details before you commit to paying for income protection.  

Some policies only cover you if you become severely disabled and are not able to carry out any paid work. It provides very little protection and before you could receive any benefits, you would have to be severely and permanently disabled. 

Make sure you know what sort of policy you are getting.

Get income protection insurance on bonkers.ie

Now that you've gotten familiar with income protection at bonkers.ie, it's time to apply for an income protection policy with the help of our free income protection comparison tool. 

Once you find the right policy for you, you can apply online through our website. 

Don't forget you can also find the best value insurance policies across a range of different insurance types, such as life insurance, mortgage protection, home insurance, and car insurance on our site.

You can also cut the cost of your energy and broadband bills, and find the best value banking products and mortgage rates too.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:

You can keep up to date with our insurance-related news on our blog and guide pages.