Protecting your most valuable asset

When most people are asked what their biggest asset is, the chances are they’ll say it’s their home. In some cases this might be true, but for the vast majority of us our greatest asset is our income, or more specifically our ability to earn an lncome.
Stop for a minute and think of the many different types of insurance you may currently have, car insurance, house insurance, health insurance maybe even pet insurance. What is it that pays for all of these? Your income, yet for 85% of the population their income is not Insured.
Income Protection which is also known as Permanent Health Insurance (PHI) provides you with a replacement income if you are unable to work due to an accident, injury or illness. It can replace up to 75% of your usual income less any social welfare payments when you’re off work.

You pay a monthly premium just like any other insurance policy. This premium is determined by your age, occupation, deferred period and health status. If you are absent from work due to illness or injury, your chosen insurance company then provides you with a replacement income until you return to work, or until your chosen retirement date if you’re not fit to return to work before then.
Unlike a lot of other insurance products, if you make a claim, your policy will continue at no extra cost to you, meaning if you have to claim again in the future, your policy will still pay out.
Income protection should be the cornerstone of any long-term financial plan, as all financial plans require an income to fund them. Most adults have some form of life assurance in place, yet statistically you are far more likely to be out of work sick for a long period than to die before you retire.

It is also possible for an employer or business owner to have the business take out an income protection policy for them. The business receives the benefit but that allows them to continue paying an income to the employee.
It’s a common misconception that the State will provide you with sufficient income if you are too ill to work. At the time of writing, the State Illness Benefit is €208 per week for a single person and so most people would need to top this up with a payment from an Income Protection policy to maintain their lifestyle. If you’re self-employed or a company director paying Class S PRSI, you may not qualify for any State Illness Benefit.

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What are the issues that need to be considered before taking out an Income protection policy?
My occupation
Different occupations carry different levels of risk and as such the cost of income protection will vary.
How much Income Protection do I need?
The maximum level of cover that you can insure yourself for is 75% of your earned income, this must include any State Illness Benefit you may be entitled to. This limit is mainly imposed to prevent there being more of an incentive for you to stay at home sick than to be at work. That said, you can insure yourself for less than 75% if you wish, if you feel you could maintain your lifestyle on a lower amount, which would keep the cost of your cover down.
Do I get tax relief on my premiums?
Yes, It is the only type of Insurance on which the Government will give you tax relief at your marginal rate, this in itself tells you just how important this type of cover is. In effect, you can now use your tax bill to start paying for some of your Insurance costs.
What is a Deferred Period?
This is an initial waiting time at the start of your claim, It relates to the length of time between when you were last at work and when you start receiving a benefit.
You can choose the length of the deferred period, usually 13, 26 or 52 weeks.
Simply put, the shorter the deferred period, the dearer the premium. Typically, people choose a deferred period that fits in with their employment or savings. For example, if your employer will pay your salary for six months if you are out sick, you could choose a policy that will start to pay you after six months. Most families should aim to have an 'Emergency Fund' in place which would cover the first 3 months. This would enable you to select an Income protection policy with a deferred period of 13 weeks.
In summary, Income protection should form a key part of your financial plan. Ask yourself, how would you cope financially if you were unable to work? Would you have a replacement income in place? how would you pay these normal household bills without an income?
So protecting it makes sense! Contact your financial advisor for a quote.

Conor Harte BFS QFA CFP® of Wealthwise Financial Planning with offices in Carrick-on-Shannon, Co Leitrim & Oranmore Co Galway, www.wealthwise.ie All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland.#CI66141