A question I like to ask my clients is “What is your most valuable asset?” and, more often than not, they will reply “My home”. But if consider the value of your annual salary over your potential working life, this is in fact, your most valuable asset. For instance, if you earn €60,000 per year and are 30 years old, that represents an asset worth over €2.1 million between now and the state pension age of 66.
Another exercise I ask my clients to do as part of the Financial Planning process is to consider all the direct debits coming out of their bank account each month. If their salary were to stop and they had to survive on the state disability of €220 per week, how many of these payments would you need to cancel?
I find it interesting that we have insurance for all sorts of things like our holidays, phones, and our pets, yet many don’t realise that if their income isn’t coming in, none of these can be paid for in the first place.
So, what can you do if you decide to insure your most valuable asset? The answer is an Income Protection policy.
What is Income Protection?
Income Protection is a policy that pays you an income if you are unable to work following an accident, illness, or injury.
How much can I insure?
Up to 75% of your income less the state illness benefit. You may not need the full amount, so your Financial Planner will assess the household income and outgoings to help you reach a suitable cover level.
How much does is cost?
The monthly premium depends on your age, occupation type, the amount you want to cover, how soon you want the cover to kick in and your smoking status. The good news is that you can get tax relief on your premium at your marginal rate. This is always a pleasant surprise to our customers who are applying and makes it much more attractive.
For example, €25,000 worth of cover for a female non-smoker age 30 next birthday* after tax relief is only €23.61 per month.
Can everyone who applies get it?
No, not everyone can get it. When you apply you will be asked some medical questions and this will in turn will be assessed by an underwriter. They will make a decision based on your medical history.
How is it paid?
Unlike Serious Illness cover which is paid out typically in a lump sum, this is an income paid by the insurer to you each month, until you go back to work or indeed until you retire.
Do I get a payment if I don’t claim?
No, this is an insurance policy so in the event of not claiming, there is no payout.
Are there any other benefits attached to the plan?
Depending on the insurance company you have the policy with, some will have additional rider benefits which your Financial Planner will make you aware of in advance of the application.
If you would like some more information on protecting your income, you can speak to an IPF Advisor by calling 01 8298500 or through our website http://www.ipf.ie.
*Female, 29 years 6 months (28/12/1993), Non-Smoker, annual income benefit of €20,000 payable until age 65 after a deferred period of 26 weeks. Occupational Class 1 assumed – Aviva Personal, level & guaranteed.
Written by,
Lynette Moore,
Senior Financial Advisor.