Have you thought about how long you could pay your bills if you got sick or injured and were unable to work?

The purpose of Personal Income Protection Cover is to provide a regular income if you are unable to work due to illness or injury for a certain period of time and you suffer a loss of earnings as a result. You must be totally unable to perform the essential duties of your normal occupation and not be engaging in any other occupation.

Personal Income Protection is designed solely to provide protection benefits and there is no surrender value payable at any stage under the policy. At the time of a claim, your earnings must be at the level that justifies the amount of cover you have chosen. If not, you will receive a reduced benefit. In this case, the insurer will not refund any part of the payments you have made.

Under current legislation, the benefit payments will be treated as income and so are assessed for income tax, PRSI and the Universal Social Charge (USC). The insurer will take any income tax, PRSI and USC, in the same way as an employer would take them from a normal income, before providing the benefit to you.

How important is your income?

The income you earn determines the life you lead. It’s easy to think of all the ways you use your income; it pays for the day‑to‑day living expenses and bills that allow you to create a home and provide for your family. It also helps pay for special occasions that create lasting memories. If it suddenly stopped, your life would change drastically.

How long could you cope financially if you were on sick leave?

If you are self‑employed, you will have to rely on any investments and savings you might have. There is no State Illness Benefit available to self‑employed workers. If you are employed, your employer might have sick leave benefits that will automatically cover you when you’re off sick. But these are usually only available up to a certain time limit – do you know how long these benefits would last with your employer?

Once your employer's sick pay ends, you would have to rely on the State Illness Benefit and any savings and investments you might have.

Reasons to choose Income Protection

You’re self‑employed so don’t qualify to receive the State Illness Benefit

• You’re working more than 16 hours a week in paid employment and rely on your income to support your outgoings

• Your current sick leave benefits would not be sufficient • The State Illness Benefit is not enough to support you and your family.

State Illness Benefit

The State Illness Benefit is currently up to €208 a week for eligible employees, depending on your average weekly earnings in the relevant tax year. The State Illness Benefit can only be claimed for a limited period, as it is currently payable for a maximum of two years. The State Illness Benefit is administered by the Department of Employment Affairs and Social Protection and is subject to qualifying conditions.

For more information visit: www.welfare.ie

All information as of January 2022.

How to work out the amount of income you need to protect

You can cover up to 75% of your earnings, less the personal rate of the state social welfare illness benefit if you are entitled to it, up to a maximum of €262,500 per annum. If cost is an issue, you don’t have to cover the full amount, as even a little cover is better than none.

When choosing the level of Income Protection benefit you want, you should take into account whether you may be entitled to the social welfare illness benefit. You should also consider any other insurance plans you already have that provide cover for accidents, illness, or injury. Otherwise, you may be paying for more Income Protection benefit than you can claim.

Your Financial Broker is best placed to advise you on the level of cover that suits your needs and circumstances.

How long your cover should last

Choose the expiry age that best suits your circumstances. This is when your cover will end and you can select any age between 55 and 70. Many people will choose an expiry age to coincide with their retirement age. And, as the age of retirement is increasing, we offer expiry ages up to age 70. Please talk to your Financial Broker to make sure this applies to you as certain occupations have lower expiry ages.

Can you have more than one Income Protection policy?

Yes, you can have more than one Income Protection policy in force at the same time.

However, the total sum of the benefits from your Income Protection policies shouldn’t exceed 75% of your earnings (less the personal rate of the State Illness Benefit if you are entitled to it).

For example, Susan’s employer provides Income Protection, but it only covers 50% of her salary. Susan can apply for her own Income Protection policy to cover part of the remaining salary.

When do you want your Income Protection benefit to start?

There is an amount of time you have to be off work continuously, due to illness or injury, before your Income Protection benefit starts being paid. This is called the Deferred Period.

You can choose a Deferred Period of 4, 8, 13, 26, or 52 weeks.

You will most likely match this time to suit your personal circumstances, for example, it could be based on your employer’s sick pay rules. So you would choose your Deferred Period to match the amount of time your employer will provide full sick pay. This way, as soon as your employer's sick pay ends (or reduces), your Income Protection benefit would start.

Or it could be driven by cost. The length of the Deferred Period you choose will impact the cost of your policy. The longer the Deferred Period, the lower your monthly premium.

For additional flexibility, you can choose two Deferred Periods within your policy. So, for example, you could choose to provide a certain amount of Income Protection benefit after a shorter Deferred Period and a higher Income Protection benefit amount after a longer Deferred Period.

This may be useful in order to best match employer sick pay schemes or to help reduce the overall cost of cover. We recommend discussing your options with your Financial Broker to ensure you choose the best Deferred Period(s) to suit you.

For example, Mary is employed and pays PRSI. She has selected one Deferred Period of 26 weeks on her Income Protection policy. Mary chose this amount of time because it coincided with when her employer's sick pay would end. Following a cancer diagnosis, Mary goes on sick leave from work. During the Deferred Period, she receives her employer's sick pay benefits and her State Illness Benefit. After 26 weeks, her employer's sick pay ends and Mary’s Income Protection benefit starts.

Use Indexation to help protect your cover from the effects of inflation

Inflation impacts the general cost of living, as it means the price of goods and services increases over time. By adding Indexation to your policy, your cover increases by 3% each year, in return for a 3.5% increase in your premiums each year. In the event of a valid claim, your Income Protection benefit will continue to increase by 3% each year while the claim is being paid.

This helps offset the negative effects of inflation.

Escalation in Claim

You can also opt to include the Escalation in Claim option on your policy. This means that your Income Protection benefit amount will increase annually if you’re unable to return to work more than one year after a claim.

So, if you choose to add this to your policy and in the future you make a claim and receive your Income Protection benefit, the amount you are paid will increase by 3% each year to help keep pace with inflation.

There is an additional charge for this option that depends on factors related to your policy and is included in your guaranteed premium. Your Financial Broker can give you this detail.

Hospital Cash Benefit

A benefit is payable when you are hospitalised for over a week. If you are admitted to hospital, a daily income is payable for every day you spend in hospital after day 7. This benefit is payable during your Deferred Period only and will continue for a maximum of 90 days for any one hospital stay.

The benefit must be claimed within 6 months of the date of hospitalisation. A benefit limit of 365 days in total applies for the duration of the policy.

For example, Joan was admitted to hospital and was an in‑patient for 15 days. The Hospital Cash Benefit was payable for 8 days of her hospital stay. Joan does not have to use this benefit to pay medical expenses; she can use it for any purpose.

Proportionate Payment

A partial benefit payment may be payable if you return to work on reduced earnings. If, as a result of your illness or injury, you are only able to return to work part‑time or have to pursue an alternative occupation with a lower income, you may be eligible for a proportionate payment to help make up for some of those lost earnings.

For example, Jack works 40 hours a week and earns €60,000 per annum. He has an Income Protection policy protecting €30,000 p.a. of his salary which will expire on his 65th birthday. Following a car accident, Jack was unable to work. While off work, after the end of the Deferred Period, Jack’s Income Protection benefit commenced.

After 10 months, Jack’s doctor advised he could return to work on a part‑time basis for 10 hours a week. His part‑time earnings would only be €15,000 p.a., and so his income has reduced by 75% compared to before his accident. As the proportionate payment is calculated based on this 75% reduction in earnings, Jack will continue to be paid a reduced gross benefit amount of €22,500 p.a. (€30,000* 75%) from his policy.

This Income Protection benefit will be taxed in the same way as Jack’s normal income. This payment will continue either until Jack’s health improves sufficiently that he can return to full‑time work or until he reaches age 65.

Back to Work Benefit

If you have been off work due to sickness or injury for a long time, returning to work can be an adjustment. While you may be happy to be back working, it can take time to return to a working routine.

To help with this financially, we will pay you 75% of your monthly Income Protection benefit for your first month back at work, 50% in month two, and 25% in month three. The benefit is payable if you return to full-time work has been in receipt of Income Protection benefit for at least one year. The Back to Work benefit may be claimed only once during the policy and it is not payable where immediately prior to returning to full‑time work you have been in receipt of a proportionate payment.

For example, John was on sick leave from work for 24 months. At the end of his chosen Deferred Period, John was paid a gross benefit amount of €2,250 each month from his Income Protection policy. When he was fit to return to work, the first month back, in addition to his salary from his employer, he was paid a gross amount of €1,687.50 (€2,25075%) from his Income Protection policy.

The second month back at work he was paid a gross amount of €1,125 (€2,25050%) and on his third month back at work, he was paid a final gross payment of €562.50 (€2,250*25%) from his Income Protection policy. This Back to Work benefit is taxed in the same way as John’s normal income.

Linked Claims Benefit ...

restarts claim payments if you relapse after returning to work following a claim. If within six months of your return to work following a claim you have to stop working again for the same reason your original claim was based on, you will not have to wait a Deferred Period to start receiving your Income Protection benefit. If you have chosen two Deferred Periods on the policy, the Income Protection benefit payable, following a linked claim, will be the benefit amount payable prior to returning to work.

Although, any changes in your earnings may affect the maximum amount of Income Protection benefit that is payable. Where this benefit amount is based on the first Deferred Period, then the higher benefit amount payable from the end of the second Deferred Period will start when the amount of time you are off work due to the original claim, when combined with the amount of time off work due to the linked claim, is equal to the second Deferred Period.

For example, Mark chose to provide a total Income Protection benefit of €18,000 p.a. on his policy. He chose two Deferred Periods with a benefit of €6,000 p.a. (€500 gross per month) payable after 13 weeks and the remaining €12,000 p.a. (€1,000 gross per month) payable after 52 weeks. Following a claim, Mark received an Income Protection benefit from week 13 of his illness of €500 gross per month.

He returned to work after a total of 37 weeks sick leave. After being back at work for five months, Mark suffered a relapse and was unable to continue working. Mark let us know, and provided the relevant information from his doctor confirming that he is unable to work for the same reasons as his original claim.

Mark’s Income Protection benefit of €500 gross per month is payable again immediately. After 15 weeks, Mark’s higher Income Protection benefit amount of €1,000 gross per month is payable (original 37 weeks plus 15 weeks = 52 weeks).

Essential Activities Benefit

This provides lower cover for periods of unemployment, taking a career break, or parental leave. We understand that people’s circumstances can change over time. So, if you become unemployed, take a career break or parental leave, you will not be covered by your Income Protection benefit. However, you will continue to be covered by the Essential Activities Benefit.

This is payable if you are unable to carry out certain personal activities, e.g. walking, as defined in the policy conditions. The benefit amount is the lower of €15,000 a year and the Income Protection benefit amount

If you return to work within 12 months of switching to our Essential Activities Benefit, you can reinstate your full cover without having to provide any new medical evidence.

Guaranteed Insurability Option ...

Allows you to increase your cover as your income grows. As you move through your career, your income is likely to increase with your experience. To allow your Income Protection cover to reflect this, you can increase it by up to 20% of the initial amount protected every three years, without having to supply any new medical evidence.

This option is available to you until you decide not to use it on two consecutive occasions. The maximum total increase during your policy is 100% of your initial cover amount.

It is important to note that, before increasing your cover, you should consult your Financial Broker to make sure any increases are within the maximum cover limits payable on your policy. Royal London Ireland may request financial evidence to justify that your earnings are at an appropriate level for any increase in cover.

For example, Ben has an Income Protection policy with cover of €50,000 per annum. Three years after taking out his policy, Ben decides to increase his cover amount by 20%. On the 6th and 9th anniversary of taking out his policy, he again decides to increase cover by 20%. Each time his cover amount increases, his premiums also go up to reflect the change.

Continuation Option

If you change jobs, your new employer may apply to us to replace your Personal Income Protection policy with a new Income Protection policy. By using the Continuation Option, it means that we won’t look for new evidence of health, as long as the cover and benefits are identical to or lower than those provided under the original policy.

If the original policy has any ratings or exclusions, the same terms, and conditions will be applied to the new Income Protection policy.

For example, Aoife has a Personal Income Protection policy with an annual benefit of €25,000 and a Deferred Period of 13 weeks. Her new employer provides Income Protection for key employees and offers this benefit to her. Aoife’s employer applies to her insurer to replace her existing policy with an Executive Income Protection policy with the same annual benefit and Deferred Period. Her employer will also be responsible for paying the policy premiums.

By using the Continuation Option, Aoife won’t have to answer any medical questions when her new employer applies to us for the new policy.

Tax relief is available

You can claim tax relief on all premiums you pay at your marginal rate of tax if you currently pay income tax. This means that if you are taxed at the higher rate, currently 40%, on a €100 premium you will get €40 tax relief – so the net cost to you is only €60.

The gross premium is payable to the insurer and the tax relief is claimed from Revenue. It is your responsibility to claim tax relief. If you are unsure of any aspect of the tax treatment of premiums or benefits, please contact your Financial Broker for more detailed information.

Waiver of premiums

While you are in receipt of an Income Protection benefit payment, you will not have to pay the premium related to that benefit. This is called a waiver of premiums.

For example: Tom has a car accident and goes on sick leave from work. Following the end of his selected Deferred Period, he starts to receive his Income Protection benefit. While receiving his Income Protection benefit, he does not need to pay any monthly premium payments to the insurer. But, if well enough to return to work in the future, his cover can resume, along with his premiums, until Tom reaches his selected expiry age.

Premiums are fixed

Your premium, unless you choose Indexation, is guaranteed to stay the same throughout your policy, as long as your chosen benefits remain the same. However, the Government levy of 1% (as at January 2022) which is included in your premium may change in the future.

Changing your job

If you change job after the policy start date, you do not have to tell us. Your Income Protection policy will continue to protect you with the same terms and conditions, regardless of your new occupation.

However, it’s important that the amount covered by your Income Protection policy doesn’t exceed 75% of your earnings, less the personal rate of the State Illness Benefit if you are entitled to it. If this is the case, or if you’re working less than 16 hours per week in your new job, or if you become unemployed, you should let us know.

Terminal Illness Cover

If you claim due to a Terminal Illness and have been diagnosed with less than 12 months to live, your Income Protection benefit payments will start immediately.

Maternity and Paternity Leave

You’re eligible to apply for Income Protection while on maternity or paternity leave. However, acceptance terms are subject to full underwriting. Your Income Protection policy will continue to protect you during your maternity or paternity leave and your premiums are still payable.

Pre-existing conditions

An additional premium or an exclusion may be applied to your policy if you have a pre‑existing medical condition at the time you take out your Income Protection policy.

Common exclusions seen for Income Protection include: • A mental health exclusion if a person has a history of anxiety, stress, or depression. • A musculoskeletal exclusion if a person has a history of a back, neck, or shoulder disorder.

Want to find out more?

If you have a question about Income Protection then you can contact me on 087 250 6365, email john@forsythe.ie, or visit www.forsythe.ie