What Is Salary Protection and Why Should You Care?

Imagine this: you're living your life, working hard, paying bills, maybe saving a little on the side. Then, out of the blue, something happens—a serious illness or injury—and you can’t work for a while. Now, ask yourself: how long could you manage without your income? Weeks? Months? What would happen to your bills, mortgage, or rent? Would your savings cover everything? 

That’s where salary protection, or income protection, comes in. Think of it as a safety net for your pay cheque. If you’re unable to work due to illness or injury, this insurance can pay you up to two-thirds of your salary until you’re fit to return to work, or even until retirement if necessary. It’s like having a backup plan to keep the lights on and the fridge full while you recover. 

How It Works 

Salary protection (also known as income protection) isn’t about scaring you—it’s about being prepared. Let’s say you earn €60,000 a year. With income protection, you could receive up to €40,000 annually if you couldn’t work, even after your employer stops paying you. And here’s the good news: the government gives you a helping hand with this. You can get tax-relief on the premiums you pay at your highest tax rate, making it more affordable than you might think. 

 Why It Matters 

Many people assume their job will cover them if they’re unable to work, but the reality is that most employers only provide sick pay for a few weeks or months at best. After that, you’re often left relying on savings or social welfare, which might not be enough to cover your regular expenses. 

Simple Questions to Ask Yourself 

• How long would my job pay me if I got seriously ill or injured? 

• What would happen if my income stopped for 6 months or a year? 

• Would my family and I be able to manage financially?

Peace of Mind 

Income protection isn’t about expecting the worst—it’s about being ready for it. Just like you insure your car or home, it makes sense to protect what keeps everything running: your income. Talk to a financial advisor or insurer to see what works for you, and ensure your family’s financial stability no matter what life throws your way. 

Having salary protection in place is like knowing you’ve got a lifeline, just in case. It’s one less thing to worry about, so you can focus on getting back on your feet. 

Extra benefits on Life Assurance…at no extra cost

Life Assurance can go beyond helping with financial protection and most companies can include several additional benefits at no extra cost when you set up a policy. Some examples of these complimentary benefits include:

1.    An option to receive a second opinion on a medical diagnosis. This service gives customers access to over 50,000 world leading experts who can double check a diagnosis, investigate alternatives, and get additional treatment options for any condition affecting a person’s quality of life. The life assurance provider will put you in touch with the most suitable expert to answer any questions you might have, give a second opinion and provide a comprehensive report to help you and your treating doctor select the best course of action.

2.    A Digital GP service – this is a private doctor service offering customers and their immediate family access to clinical advice and guidance without having to wait for a face-to-face appointment. It is not for medical emergencies but can be used in the same manner as using a local GP. They can prescribe medication and issue referrals if needed.

3.    Various specialist therapies - such as Bereavement Counselling, Speech and Language Therapy, Face-to-face second medical opinion, Mental Health Counselling, Complementary therapies or Physiotherapy for specific serious health conditions. These are just some examples of additional benefits offered with a life policy.

4.    One month's free cover - your cover starts as soon as your application is accepted but the cost of the first month is covered by the life company and your first premium starts in the second month of the policy.

5.    Stay covered for longer - you can have Term Assurance up until you turn age 91 and alternative life cover beyond that – this is the oldest age offered by any life insurance provider. People are living longer these days, so having the option to extend life cover to reflect this, is useful.

6.    A Get Fit Programme - this is another option with one life company, it includes personalised nutritional recommendations, and an exercise plan designed by a team of nutritional experts.

7.    Children’s Life Cover – many companies automatically include an amount of life cover allocated to children of the policy owner, until they reach the age of 18 (or age 21 if in full time education)

As a broker, I have access to the leading life companies and can tailor your life cover depending on your needs.

Attitude to Risk - not just for investments

"Attitude to risk" is a term often used to describe an investors sentiment to risk/volatility when choosing investments to reach their savings goal. Every person has a different attitude towards risk when it comes to financial gains or losses and there are varied reasons why each person may be uniquely suited to a specific strategy. In general, though, people tend not to associate risk with deciding on life assurance and serious illness cover.

Just as attitude to risk in investments is based on a persons’ individual circumstance, so too is choosing the right amount of life and illness cover. The usual type of questions you get from an investments perspective is “how would you rate the degree of risk you are willing to take in your financial affairs? The optional answers range from “Extremely low risk to “Extremely high risk”. People generally understand that when the value of their investment/pension goes down a lot it may have a significant impact on their lives if it doesn’t recover.

The same question can apply to a person’s health. If you consider your investment value/pot the same thing as your Body/Mind, the financial impact to a loss of either body/mind can be equally damaging. Part of the difference appears to be that most people really do not believe they will ever become unwell or die, the thinking being that this only happens to other people.

I regularly meet with people to do financial reviews with savings into a pension or growing their money as their priority. Quite often they do not consider life, illness or salary protection important, particularly if they are in good health (which ironically is usually the best time to take out these covers). It doesn’t actually matter if you value these covers or not, what matters is what your honest answer is to the question “If I or my partner died or was unable to work for a prolonged period of time, how would our family cope financially?”. If the honest answer is that you would struggle, then the next question has to be “Why would I not review my cover to see if I can protect our family?”.

I was quite shocked recently hearing news of three different people I know, to have suffered either the death of their partners (in their 40s) and one with a terminal illness diagnosis. A sombre but important reminder that we are all vulnerable to illness and death at every stage of our lives.

Whole of Life Insurance… does what is says on the tin!

Whole of Life Cover is a life assurance policy that lasts for a whole lifetime and is not limited to a specific term.

What are the benefits of this type of policy?

If you pass away this policy will provide a cash lump sum payment to your family. This can be used to cover funeral expenses or for settling outstanding debts. In the event of a definite terminal illness diagnosis, the full life cover payment can be made straight away to the policy owner to help with ongoing bills and expenses.

It can also provide tax-efficient inheritance planning cover for your family once it is set up as a ‘Section 72’ life policy. They may be liable for inheritance tax which can be a massive burden at an already difficult time. Inheritance tax is payable to the Revenue Commissioners when the value of the assets inherited is higher than a certain threshold. Depending on the assets being inherited, they may need to borrow money or sell a part of their inheritance in order to cover a potential tax bill.

There are optional benefits that can be chosen when setting up the policy which are dependent on the provider you choose. For example, Royal London provide an option to include a Life Changes feature which means if you stop paying premiums after your policy has been in place for at least 16 years, you can receive a cash amount back or have a guaranteed amount of life cover remaining for the rest of your life.

How do I set up a policy?

Whole of Life cover can be taken out by anyone aged between 18 to 74 years and the cover is for the rest of their life. A financial advisor can help you determine the level of cover you need depending on your circumstances and your dependents. Once the application is accepted, you then pay a set amount on a regular basis which is usually guaranteed never to increase (unless you choose inflation protection/indexation as an additional option).

When you are considering the cover you need, you should take account of

• any other loans and bills

• the income your family will need to live on

• any funeral expenses

• any inheritance tax bill that may arise when you die

A sample quotation for a non-smoking couple aged 43 and 44, for Dual Life Cover of €30,000 each (including the Life Changes option as above, without indexation) works out at €66.51 per month.

(Quote as of May 2022)

Cashflow Planning

The heading makes the task sound a bit boring, and slightly business-like… but the actuality of this term is something we all do in everyday life! Each month, most of us will have bills to pay, maybe a mortgage/rent, household utilities, insurance…followed by food/clothing bills, savings and hopefully some funds to put aside for a social life or something nice to enjoy as a reward for our hard work. This short-term planning is an important and smart habit to have and can help us be prepared for any unexpected bills or events that may occur along the way.

A secure online financial planning system we use for creating financial reviews can help with the long-term cashflow planning. It allows safe access to a portal where you input your expenditure/liabilities, savings/income and most importantly, your objectives now and further into the future. The more information you can input, the clearer the picture can be for your financial adviser and the more accurate the recommendation. It helps to highlight any areas where you may need to perhaps direct funds towards protecting yourself and your family or maybe towards saving for big life events such as starting a family, college fees, buying a property or preparing for life in retirement, to give some examples. Or maybe you have a dream of cruising around the world and want to figure out how you can make it happen!

Although this system helps identify the areas you need to focus on and it is planning for the long-term, nothing is ever set in stone and life can change in a heartbeat. The results and graphs can show you various scenarios throughout your life and the impact they may have on your finances.

Once we provide the results and recommendation, it is up to you to decide on the next step. As life can be ever-changing and unpredictable at times, we feel it is important to review your cashflow status every one to two years or should your circumstances change. So, as you have your monthly planning habits, an annual check-in on your cashflow plan will help give you peace of mind knowing you are using your money wisely and as best you can to achieve your goals.

Apart from mapping out a financial plan for the future, it is also a good opportunity to review any existing life policies or pensions you may have. Once you give signed instruction to a provider, your adviser can contact the life and pension companies on your behalf for further policy details. If you would like to see more information on cashflow planning, just visit www.drumgoolebrokerage.ie/planning.

Did you know....?

Did you know... Multi-Claim Protection can pay out multiple times for different illnesses over the lifetime of the policy and it can also trigger multiple claim components for one illness.

Did you know... Life insurance pays out a lump sum if you die or suffer a critical illness (depending on the type of cover you hold). Death in service is similar. Death in service may be offered by companies as part of an employee’s benefits package. It’s paid out as a tax-free lump sum if you’re employed by the company (i.e. on the payroll) at the time of your death.

Did you know... When you apply for life insurance, you may be asked to complete a medical exam and the life company will pay for this medical exam. It might be a good opportunity to avail of a complimentary check up!

Did you know... Key Person Insurance is a business-specific life insurance (also known as Business Protection) which can compensate a company for the financial loss and other consequences of the death or serious illness diagnosis of a key member of the business.

Did you know...  Income Protection policies and some Life Assurance policies allow you to claim tax relief at either standard tax rate (20% or 40%). This means if you are paying €100 monthly, you may get as much as much as €40 refunded on this premium

Did you know... When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act. By setting up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts, this can help avoid a potential inheritance tax bill.

Did you know... If you are self-employed, Shareholder/Directorship Protection is an arrangement between company directors, which allows for a deceased’s directors share of a company to be bought by the remaining Directors.

Did you know... by reviewing your Mortgage Protection policy, you may be able to obtain more cover and additional benefits for the same or reduced price than with your original policy.

Did you know... the application process has become a much easier process these days with the availability of editable PDFs and Docusign …one pro to come out of the current situation!

Did you know... For any change in lifestyle (e.g. New house, starting a family) it is a good practise to review your financial needs and check if you are fully covered or to see where you may require additional protection.

€100 For Cover That May Only Cost €70???

Our new financial planning system has been hugely successful and popular in assisting clients with setting budgets and plans in place for their future. We try to get people to visualise what they would like to have as a goal, whether it is to pay off a mortgage early, retire early, travel the world or simply provide for family later in life.

Another handy way it can help is to configure whether a person has enough protection in place. Whether it is mortgage protection when purchasing a home or perhaps income protection for a self-employed person, the first question we ask is …how much have you got to spend? This is a great starting point as we can then provide various quotes to accommodate this figure without going over budget before we have even begun!

The following is an example of a quote for Joe Bloggs who is a married, 35-year-old, non-smoker who told us that he has €100 as a monthly budget for his protection needs. In his case, the three main areas he wanted to review was protection for his income, life cover for his family and specified illness cover.

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After we provided Joe with these quotations, we were able to inform him that he can claim tax relief on €75 of this cover at his standard tax rate (20% or 40%). This meant that he could save €15 to €30 a month bringing the total cost (€100) of the cover down to as little as €70 per month.