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.

Additional Life Cover

Question: I’ve just had my third child and have been advised to put some insurance in place, but after making some enquiries, I’m pretty confused and have a limited budget. What’s the difference between Life, Serious Illness and Permanent Health insurance?

Answer: Yes, insurance is an important consideration, especially when you have people who will be financially dependent on you. Understanding the benefits of each of these types of insurance can be confusing at times. As a guide, Life Cover pays out a lump sum in the event of your death. There are generally two types; one that lasts for a specific number of years called Term Assurance and a Whole of Life alternative which can provide family protection, protection of your estate and business protection (until death). If you are self-employed, Life Cover can also be used to ensure the financial survival of your business in the event of the death or serious illness diagnosis of a director or key employee (Key Person Insurance). Mortgage Protection is also a form of Life Cover which decreases over time as the policy is designed simply to pay off the balance of your Mortgage should you pass away.

Serious Illness cover pays out a lump sum if you are diagnosed with a specified serious illness during a determined number of years. The list of defined illnesses can vary from company to company but generally most major illnesses like cancer, multiple sclerosis and stroke are covered. It can be taken out on its own or alongside Life Cover. It can also help subsidise a missing income if you or your spouse/partner are unable to work due to illness or disability.

Permanent Health insurance is more commonly called Income Protection and it effectively replaces some of your income (up to a max. 75%) if you are unable to work for an extended period of time due to an accident or illness. This type of policy provides you with a regular income, starting after a deferred period (from four to 52 weeks) with the potential to continue until you retire depending on your health. Affordability is obviously an important factor and your age, current health and the amount of money you want to be insured for all impact the cost.

Conclusion: For any change in lifestyle (eg. 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. One call to your financial broker can help you understand the options available and to ensure you are spending your hard-earned money appropriately.