Over the next few months, I’ll be posting comparisons of the different financial products so you all get a proper understanding of what they are and how they can benefit you in Ireland. So here goes with the first, INCOME PROTECTION vs SPECIFIED SERIOUS ILLNESS COVER.
Most people think their biggest asset is their home, or their investments or their bank account.
But in reality, it’s their ability to earn an income.
Let’s face it, if you can’t work, it won’t be easy to pay the bills and all other things that we take for granted on a daily basis.
Please take a minute and write down a list of things that come out of your income on a weekly basis, you won’t be long filling up a sheet of A4 paper.
If you have been living and working in Ireland for 5 years or more, you may qualify for the State Illness Benefit of €208 per week if you are unable to work due to illness or disability.
However, if you are new to the country, you probably would not qualify for any State Benefit at all.
Either way, would €208 per month be enough to maintain your life-style if you are unable to earn an income? That’s €10,816 per annum!!
There are two ways to protect yourself in the event that you get seriously ill – through a Specified Serious Illness policy (similar to a Dredd Disease policy) or an Income Protection policy.
In an ideal world, you’d have a combination of both.
Here’s the main differences between the two types of policy:
Income Protection
· Income Protection covers you for ANY illness or injury that prevents you from working (although if you have any pre-existing conditions these may be excluded).
· Mental health conditions, musculoskeletal and orthopaedic conditions are also covered and they make up the bulk of the claims.
· You receive a monthly income until you are fit to return to work or until retirement if you are unable to work again.
· You receive tax relief on the premiums at your marginal rate (20% if you are a standard rate tax payer & 40% if you pay tax at the higher rate).
· The payment you receive when you are on claim is treated as income from a tax point of view, so you pay income tax on it.
· You don’t have to pay any premiums during claim stage.
· No increases in premium after claiming.
· The cost of cover depends on how long a ‘deferral period’ you choose. This is the amount of time you have to wait for the claim to kick in after diagnosis. You can choose 4, 8, 13, 26 or 52 weeks. The longer the deferral period, the cheaper the premiums.
· Occupational Risk classes are another factor that determines your monthly premium. They run from 1 to 4, 1 being low risk and 4 being high risk. The lower the risk class, the cheaper the premium.
· If your policy is a Personal Income Protection plan, you can take this with you to any new employment in the future as this is your own.
Specified Serious Illness Cover
· You are covered for a wide range of illnesses listed on the policy – but only those illnesses that are specified.
· The main claims are for cancer, heart attacks and strokes but policies typically cover you for in the region of 80-103 illnesses depending on the provider.
· It does not cover mental health conditions and musculoskeletal conditions.
· There is no tax relief on premiums.
· It pays out a tax-free lump sum on diagnosis of a specified illness.
· Once you make a full claim on the policy cover ceases.
Income Protection - Pros
· For people who don’t qualify for the State Illness Benefit this is probably the most important type of cover to have.
· You get tax relief on the premiums so a €100 policy will effectively cost €60 after tax relief for higher rate tax payer.
· If your doctor signs you off as too sick to work you should qualify for a claim (as long as you filled out the application honestly).
· Allows you to continue to fund for life, pay bills, food on the table, insurances, the list is endless.
Income Protection – Cons
· Occupation is a factor in the price of the policies. Policies are cheaper for office workers and tend to be more expensive for people involved in manual labour or more dangerous jobs.
· Some occupations are excluded for cover altogether.
· Because the policies are so comprehensive the underwriting is stricter than for other cover.
Serious Illness – Pros
· In the event of a claim, the lump sum payment is tax-free.
· Your occupation typically does not affect the premiums.
Serious Illness – Cons
· The cover is comprehensive, especially compared to the equivalent ‘Dread Disease’ cover in South Africa but cover is limited to the diseases specified on the policy.
· The number of illnesses covered varies significantly from provider to provider, so it is important to compare both the policy details and price when looking for cover. This means that it is very difficult to effectively compare policies online. Being independent I can provide you with a totally impartial view and show you each companies benefits.
Ideally, you should have a level of Specified Serious Illness cover and Income Protection as well.
If you’d like to know more with regards to costs or any questions at all, please feel free to contact me on the details below.
Danny Coad QFA
Tel: 0862422441
Tel: 00353862422441 (If contacting from abroad)
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