Income Protection Insurance

However, depending on the product provider, the maximum level of IPI you are allowed to insure yourself for will be between about 50% and 65% of your gross earned income, including benefits. This is because all IPI benefits are payable free of tax, and you are also likely to receive some form of payment from the state, albeit not very large.

In most cases, we recommend that you insure your income for the maximum amount you are able.

Income Protection Insurance - Considerations

Before deciding on the type of policy to buy to meet your income replacement requirements, there are a number of important issues that have to be considered:

For how long do you want to be covered?

It is possible to buy a policy that will have a termination point anything up to age 65. The longer you want the cover to last, the more likely you are to claim within that period, and hence the higher the cost. It is therefore important to consider the purpose of the protection and ensure the policy covers you throughout the time when you and your dependants would need it.

Who should be covered?

Although it is obvious to most people that the ‘breadwinner’ of the family should have protection, it is often just as important that spouses should be covered as well.

What should the deferment period be?

In most circumstances, if an individual has to cease work due to accident or sickness, they either have some form of continued payment from their employer, or a certain amount of their own resources that they can call upon. As a product provider will not pay out any benefit if you are still in receipt of your full salary from your employer, there is little point in having insurance to cover this eventuality. It is therefore important to establish when either your existing income will cease or drop, or you no longer wish to rely on your own resources. The start of any benefit payment from any IPI policy should coincide with the cessation of income from an employer. In addition, the longer the deferment period the cheaper the cost.

What quality of income replacement do you want?

The types of policy available vary considerably in both price and effectiveness. As with most things in life, in general, the more you are able to pay the better the quality of the protection. Options that enhance the effectiveness of the protection, but will increase the cost are:

• Inflation protection, both prior to and during a claim
• Guaranteed rates
• Definitions of occupation (ie ‘own occupation’, ‘any suited occupation’, ‘any occupation’, etc.)
• Investment linked
• Partial payment options
• International cover