Have you ever really thought about this question? What is the most valuable asset you possess? Most people would immediately respond by saying it’s their home, others who don’t own a property might say it’s their car, either one of these could be correct but it’s highly unlikely. In reality, for the vast majority of us our most valuable asset is undoubtedly our income or rather our ability to earn a future Income. So, this then begs the question, if this is our greatest asset, what are we doing to protect it?
I’m sure everyone reading this article already has numerous types of insurance policies in place, car Insurance, Home Insurance, health Insurance , life insurance etc, but what is the one thing that is necessary to pay the premium for all of these other Insurance policies ? Your Income of course and currently about 85% of Irish people have nothing in place to protect their Income.
How would you cope if all of a sudden you were no longer able to work perhaps due to an accident, illness or injury? How long could you maintain your current lifestyle? If you’re lucky your Employer may continue to pay you sick pay but how long will this last? 3 months, 6 months? What then?
There is a common misconception among most employees that the State will step in, they will provide you with an income if you are unable to work. Technically this is true but is it sufficient? Currently the State Illness Benefit is €188 per week, this is significantly lower than the average wage so most people would need to top this up in order to maintain their lifestyle. To make matters worse, if you’re a Company Director or someone who is Self-employed and paying PRSI class S then you may not qualify for any State Illness Benefit at all.
So, what can you do about it?
For starters, just like all of your other assets we mentioned earlier, you can Insure your Income by taking out a policy called Income Protection, it’s also known sometimes as Permanent Health Insurance (PHI), this type of cover can provide you with a replacement income if you are unable to work due to an accident, injury or illness.
How much of your Income can you protect? Generally income protection policies can replace up to 75% of your income less any state illness benefit or other social welfare entitlements. It works just like any other type of insurance policy, you pay a monthly premium for the cover, the size of the premium is dictated by factors such as your occupation, health, age etc. If you are subsequently out of work for a prolonged period then your chosen Insurance company provide you with a replacement income until are able to return to work, or until your retirement date if necessary. However, unlike many other insurance products, if you make a claim, your policy will continue at no additional cost to you, this means if you need to claim again in the future, your policy will still pay out for a second time.
Did I mention the tax relief?
It gets better, this is the only type of Insurance premium on which you will receive tax relief at your Marginal rate. This in itself tells you just how important the government feel this type of cover is. Effectively, you can now start using your tax bill to pay some of your Insurance costs.
In conclusion, Income protection should be the cornerstone of any long-term financial plan, after all, every long term financial plan needs an income to fund it. Most of us have some form of life cover in place yet we are statistically much more likely to be out of work sick for a prolonged period than we are to die before retirement age. The real question should be can I afford NOT to have Income protection rather than can I afford it.