Income protection policy - is it essential?

Movie Maestro

Hey all,

Looking for some feedback on income protection please as I've never had it before.

Some background...
Changing from a full time job to a contractor role shortly, will be working for myself.
I've have had a financial review with a broker and been advised to sign up to income protection at €159(before tax relief) per month with a 13 week deferred period.
44 years old, no kids.
I've never had income protection before and am not sure that I need it now. I'm in reasonably good health and do not have any ongoing illnesses.

I do have a serious illness protection policy.

What do people think I should do in this case?

All feedback welcome

wench

Moving away from being an employee, you lose access to the usual safety nets of employer sick pay or govt illness benefits.

While you may feel illness is unlikely, an accident could put you out of work easily enough.
Do you have enough cash reserves to support yourself if you were laid up for a few months?

Movie Maestro

wench wrote: »

Moving away from being an employee, you lose access to the usual safety nets of employer sick pay or govt illness benefits.

While you may feel illness is unlikely, an accident could put you out of work easily enough.
Do you have enough cash reserves to support yourself if you were laid up for a few months?

To be fair, probably not.

stayback

I would go through the fine print in detail. Brokers are mad to sell those policies cause the commission is high on them.

Those policies have been notorious in the past for not paying out over some detail in the small print.

While they are useful when they pay out just make sure your well informed before signing up..

Movie Maestro

I thought you get paid by the social welfare anyway if you're off sick for a while? I'm feeling a bit pressurised into signing up to this so might leave it for now and revisit it in a few months time when I'm settled in my new role.

stayback

I’m not uptodate on the social welfare entitlements so can’t comment.

Maybe put the €159 a month into a pension or a savings policy.

You’ll get tax relief on pension contributions.

wench

Movie Maestro wrote: »

I thought you get paid by the social welfare anyway if you're off sick for a while? I'm feeling a bit pressurised into signing up to this so might leave it for now and revisit it in a few months time when I'm settled in my new role.

You need to be paying class A prsi contributions to qualify for social welfare.
Depending on your contracting setup, if you are self employed and paying class S, you won't qualify.
You'll have a buffer for a year or two based on your previous payments, so you don't have to rush into anything.


https://www.citizensinformation.ie/en/social_welfare/social_welfare_payments/disability_and_illness/disability_benefit.html

Drumpot

stayback wrote: »

I would go through the fine print in detail. Brokers are mad to sell those policies cause the commission is high on them.

Those policies have been notorious in the past for not paying out over some detail in the small print.

While they are useful when they pay out just make sure your well informed before signing up..

I would love to see the evidence that "they are notorious in the past for not paying out". I have been in the industry for over 20 years and haven't seen or heard of many PHI claims that were refused. Main reasons for refusal to pay is that client either does not meet criteria for payment or there was a non disclosure at application. I have seen nurses on the Public service income protection scheme be put under pressure to go back to work, but even then they weren't taken off the payments.

In terms of commissions, its no different to commissions paid on life assurance plans which are far easier for Brokers to get across the line as there is less Underwriting. If anything Income protection policies are greatly undersold in Ireland as so few of them exist proportionate to the amount of people employed who can take them out.

Movie Maestro wrote: »

To be fair, probably not.

Self employed people in Ireland are vastly under covered in the Income Protection area. I get clients mostly coming to me for Pensions because they know they should have one and usually want to get money out of the company account in the most cost effective way possible.

But I find protection is very undervalued. People think "well if I don't claim sure I have wasted loads of money". I would say "if you do claim, it will the best money you ever spent". Most people do not think they will die or get ill before retirement, but it happens and when it happens only then do they see how it can impact their lives.

Income protection doesn't just provide you an income while you are unable to work due to Illness or Injury, it buys you time to get better from whatever you suffer. People need only ask themselves if having a subsidized income while unable to work will help or hinder them getting better. It can theoretically allow you to never work again if your illness/injury is bad enough that you cant ever work again.

If you took out €30k Income Protection (PHI) to age 65 years of age and you were unable to work from age 40 for the rest of your working life, you could theoretically receive €30k x 25 = €750,000 in income during this period.

I have heard a good salesman describe it like this. If you had an ATM machine in your house that had €750,000 of potential income in it, would you insure it? I think part of the mental block some of us have with self insurance is that it involves accepting that we actually can get sick and die. But that's just my opinion.

So then the question of "what does it cost" arises. Depends on a number of factors, your job, smoker status, amount of cover and other benefits you may or may not want to look at. One way of maybe addressing this from the start is to have a figure in mind, like "I will put €100 per month towards this cover, what will it get me?". The good news is that you can claim personal tax relief (like a pension) on the premiums or your company can actually pay for the cover and it may be an allowable expense.

I cant advise if the advice you have received from the Financial Adviser is sound as I do not know your circumstances. I also will not be providing financial advice on this forum in any capacity. But I would be a strong advocate of Income Protection for those who need it and can afford it within their budget.

Jim2007

Movie Maestro wrote: »

What do people think I should do in this case?

I think you need to have solid answers for the following:


- What happens if I can't find work? How much will I get from state benefits? How long can I survive without an income?


- What happens if I'm sick and can't work? State benefits? Savings....


- What happens if I'm incapacitated and can't work again? How do I provide for myself and my retirement?



- How do I provide for my retirement?

Movie Maestro

@ Drumpot, excellent post, gives me plenty to think about! The cost quoted of €159 is for €35k Income Protection.

As I can claim person tax relief that would bring the actual cost to me to around €100 p/m which I think I'd be comfortable paying.

Movie Maestro

@ Jim2007, I see your point alright. There is is always the 'What if?' scenarios to think about.

Movie Maestro

Initially I am working under an Umbrella company but will be setting up my own limited company in Jan/Feb 2021. I've been advised elsewhere that I can set up Income Protection as a scheme of my own company. Small reduction in price but more importantly, the company pays the premium, it's a deductible trading expense for tax purposes and not part of my salary and it's not a BIK for me. Can anyone confirm this please?

Henry Ford III

stayback wrote: »

I would go through the fine print in detail. Brokers are mad to sell those policies cause the commission is high on them.

Those policies have been notorious in the past for not paying out over some detail in the small print.

While they are useful when they pay out just make sure your well informed before signing up..

Commission disclosure is mandatory.

If you think it's too high discuss it with the Broker.

I've plenty of experience in this area, and my view is that PHI is far less restrictive claims wise than serious illness cover. Your "notorious" comment isn't accurate in my view.

I have 2 clients who would have been financially in difficulties without PHI.

Henry Ford III

Movie Maestro wrote: »

Initially I am working under an Umbrella company but will be setting up my own limited company in Jan/Feb 2021. I've been advised elsewhere that I can set up Income Protection as a scheme of my own company. Small reduction in price but more importantly, the company pays the premium, it's a deductible trading expense for tax purposes and not part of my salary and it's not a BIK for me. Can anyone confirm this please?

Confirmed as long as it's an employer scheme. Treated identically as a company pension contributions.

Important differences between Employer and individual PHI. If your advisor doesn't know what they are get someone who does.

Movie Maestro

Henry Ford III wrote: »

Confirmed as long as it's an employer scheme. Treated identically as a company pension contributions.

Important differences between Employer and individual PHI. If your advisor doesn't know what they are get someone who does.

Brilliant, thanks for confirming:)

tyler66

It doesn't matter whether or not you have children or other dependants – if illness would mean you couldn't pay the bills, you should consider income protection insurance. You're most likely to need it if you're self-employed or employed and you don't have sick pay to fall back on.

skippy2

As someone who was also fit and healthy it didn't matter when i was diagnosed with an incapacitating illness at a relatively young age. Luckily i had ticked the boxes for Income Protection when setting up my pension. I have now been receiving it for over 10 years and will continue to do so till i retire. It even covers both my employer and employee pension contributions as well. Again i ticked the right boxes when setting it up. I don't know how i would have survived without it. I can also look forward, i hope, to a well funded retirement.


Invalidity Pension is fine but it does not finance much beyond surviving with the basics.


It was a process to claim it but once you are legit and have all the professional documentation etc hard to see why you can be refused your claim.
Read the small print in any paperwork as i learned you need to understand your policy completely.

For someone who is self employed i would consider it a necessity especially if you have family.