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. 

Protect Your Salary

The main purpose of Wage Protector is to provide a regular income if you are unable to work for a period of time due to an accident or illness. It works when you cannot.

Who may it be suitable for?

Wage Protector is aimed more towards manual occupations such as construction workers, electricians, plumbers, mechanical engineers and the self-employed. These occupations may be classed as higher risk occupation categories meaning traditional Income Protection may be more expensive. Wage Protector is the more affordable alternative to Income Protection.

How is your benefit paid?

The income is paid from the provider directly to you, after tax, USC and any other relevant deductions.

How does it work?

It replaces 75% of your earnings for 24 months. To continue to claim after this time, a functional assessment test must be carried out to qualify for further benefit payments. The product is divided into two types of cover as follows.

Transitional cover

• Starting after your chosen deferred period, this pays you a replacement income if you’re unable to do your own job for 24 months.

• It gives you the chance to get back on your feet or prepare for an alternative job.

• Depending on the circumstances, after 24 months, you may be entitled to full disability cover.

Disability cover

• This applies if you’re unable to return to work due to significant illness or injury and you lose earnings because of it.

• You must pass a functional assessment test to qualify for this cover. This is a simple, easy-to-understand set of physical and mental ability tests.

You can claim tax relief on the premiums you pay at your marginal rate of tax.

*Sample quote from Aviva May 2022

Protect Your Salary

The main purpose of Income Protection is to provide a regular income if you are unable to work for a period of time due to an accident or illness.

Depending on your employment type and circumstances there are some variations of this policy available. They include Personal Income Protection, Executive Income Protection and Wage Protector. You can claim tax relief on the premiums you pay at your marginal rate of tax. For example, if you are taxed at a 40% tax rate, on a €100 premium you will get €40 tax relief, with the cost to you being €60.

When focusing on Personal Income Protection, we sometimes hear the following comments;

“The state will see me through” – The state illness benefit is currently €208 per week (single persons allowance 2022) and if you are self-employed, you are not entitled to the state illness benefit.

“It won’t happen to me” – The average age of income protection claimants in one particular protection provider in 2021 was age 48, with their youngest claimant aged 22.

“I can rely on my savings” – The average duration of an income protection claim is 5 years meaning a savings pot of up to 5 years’ salary would be needed in order to cover a similar amount.

“I already have specified illness cover” – Income protection is designed to protect your earnings throughout your working life. If at any point you suffer an illness or injury, which stopped you from working, you would still have some form of income until you are medically fit to return to work or you reach the end of your benefit period. This is in contrast to Specified Illness cover which pays a cash lump sum should you suffer one of the illnesses covered by the policy. The most common income protection claims are for psychological issues and orthopaedic conditions. Whilst these conditions can stop you from working, they are unlikely to trigger claims payments from a Specified Illness policy.

Depending on the protection provider, some other benefits can include;

• Partial Benefit - If you return to work earning less than before you may be eligible for a partial payment.

• Hospital Cash Benefit - Daily replacement income if you’re in hospital for more than 7 days during the deferred period.

• Relapse Benefit - Benefit will immediately restart if you return to work after a claim and have a relapse within 6 months.

Income Protection…is it necessary?

If you were unable to return to work long-term due to an illness or from the after-effects of an illness, would it be possible for you to sustain your current standard of living? How long will your employer pay your salary if you are unable to work for an extended period?

What is Income / Salary Protection?  Income Protection is different to serious illness cover and is designed to provide people with income replacement in the event of serious illness or if they are unable to work for a prolonged period of time. It can also be called Permanent Health Insurance (PHI).

Who is it for?  It is particularly important for those who are self-employed or people who are not entitled to a salary while off work due to a medium to long term illness or disability.

Why would I need it?  If you had an ATM in your house which held more than €500,000 in cash that you could access monthly for your day-to-day expenses, would you insure it?

We do not always think about income and future earnings as an asset. It funds our lifestyle, mortgage/rent bills, children’s education, life in retirement etc. In turn we also do not realise that as one of our biggest assets, this needs to be protected or insured. We don’t hesitate to insure our cars, houses, pets but we rarely think to insure the one thing that pays for these items…our income.

Pros: It can cover up to 75% of your income, tax relief is available on premiums paid subject to specified limits.

Cons: Depending on age, occupation and medical history, the premium can be costly, but the tax relief can bring the cost down.

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Executive Income Protection can be set up by an employer who wants to provide income security for key employees or directors. The cost of pension contributions can also be covered under this plan. One benefit for employers or business owners is that the premiums qualify as allowable business expenses so they can be offset against corporation tax.

Personal Income Protection is similar to Executive Income Protection and can be set up by individuals who pay the premium themselves and claim the appropriate tax relief personally.

Wage Protector is more budget-friendly and most suitable for more manual occupations or for workers in riskier jobs which may be more expensive to insure.

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.

Protect Your Wage

We have in the past discussed the benefits of protecting your income (Income Protection) but some factors can affect whether you will be in a good position to obtain this type of policy. If you are self-employed and depending on your profession, the cost may be too high for the cover you need.

In this instance there is a similar budget-friendly option – Wage Protector. Wage Protector is an everyday essential that works when you cannot. It is designed specifically for workers in riskier jobs who are generally more expensive to insure, such as construction workers, electricians, plumbers, mechanical engineers and the self-employed. It has all the same features of the full income protection plan, with the only difference being that it will only pay out for a maximum of 24 months per claim.

The product is divided into two types of cover:

Transitional cover: This cover kicks in after the deferred period and pays you a replacement income for 24 months if you are unable to do your own job. This gives you an opportunity to get back on your feet or prepare for an alternative job. After this initial period, depending on your circumstances, full Disability Cover may apply.  

Disability cover: This cover will apply if you are unable to return to any work due to significant illness or injury and suffer a loss of earnings as a result. You must pass a Functional Assessment Test to qualify for this cover. This is a simple, easy to understand set of physical and mental ability tests.

There are many other additional benefits included with this type of policy so visit www.drumgoolebrokerage.ie/income-protection for more details. Have a question or want to review your cover? #justcallOran on 087 668 6624. Quote source Aviva L&P

€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.