Can you afford not to insure your income?

Personal finance columnist Jill Kerby is looking at the area of income protection this week...

Ensuring that the entire employed workforce has access to sick pay other than the state Illness Benefit is a laudable achievement in this difficult time.

The new benefit is just a start - qualifying employees will only end up with 10 days of paid sick leave paid by their company per annum by 2025 but it means that workers will at least be paid (quickly) for short term sickness events while still having access to the state Illness Benefit or the means tested Disability Allowance, both of which pay a maximum of €203 per week.

The one group of workers that don’t qualify for any state PRSI schemes and don’t have an outside ‘employer’ to pay them when they are sick are the c332,000 registered (Q1 2020) self-employed people in this country (see https://www.cso.ie/en/statistics/labourmarket/lfsdetailedemploymentseries/ ).

The alternative for them if they can no longer work for a short or long period is to make sure they have an emergency cash fund that will tide them over a short illness or a very large, portfolio of cash and other assets like shares and property that could be sold to meet a long period of sickness. A valuable private pension fund can be accessed early in the event of permanent disability.

Buying a tax-deductible income protection policy from a life assurance company is far more practical and affordable, especially since it can be paid out until retirement (or age 70) whichever comes first.

According to Siocha Costello, a senior Protection insurance manager at Aviva, a typical income protection policy benefit claim is worth c€3,000 a month and lasts for five years. Policies are typically purchased by workers in their early 30s to mid-40s who by then have greater financial responsibilities like a mortgage and a spouse and children and would be facing serious financial difficulties if their employment income disappeared.

The cost of this insurance is based on the sort of employment you do (there are four categories), your age and the state of health. The self employed often site cost for not buying it, but Costello, who has two young children and a mortgage herself, counters this by asking, “If you can't afford an income protection premium now, what will you do when you have no income and still have to pay the mortgage, car, utilities, food, etc.? The average outlay for the average worker [for essential outgoings] in this country is about €3,000.”

For younger people with dependent children especially, who are still in the early stages of acquiring assets, an income protection policy (after buying inexpensive

life insurance), an income protection policy, like private health insurance offers a lot of “peace of mind.”

“Let’s put it this way,” she says. “If you had your very own ATM in the living room, doling out €3,000 every month, would you at least have a good lock on your door?”

Income protection policies pay up to 75% of your gross income (less the state illness benefit entitlement) up to retirement age if you can never work again at your current profession. The insurer works with the beneficiary to help them find work they may be capable of and the policy may continue to pay a partial benefit says Costello.

The younger you are, the cheaper the fixed premium for the amount of income you wish to protect. The longer the ‘deferred period’ before you receive the benefit, the cheaper the premium. People in higher risk manual jobs will pay more than office based ones, but there are degrees of risk. (All non-smokers get an automatic discount. Everyone is entitled to tax relief on premiums.)

The Aviva brochure which you can download is full of excellent graphs and illustrations, but a good life insurance broker or financial adviser can take you through the details and help you identify all the pertinent outgoings that need to be covered.