Here’s a question most of us would rather not think about: if you woke up tomorrow and couldn’t go to work – not for a day or a week, but for months – how would the bills get paid?
It’s not a fun thing to sit and ponder over your morning coffee, I’ll admit. But it’s one of those questions that has a habit of sneaking up on people at the worst possible time. We insure our cars, our phones, our holidays, even our pets. Yet the thing that actually pays for all of that – our income – often goes completely unprotected.
That’s where income protection insurance comes in, and it’s a lot more straightforward than most people assume. So let’s walk through what it actually is, who it’s for, and why it might be worth a look.
So, what is income protection insurance?
In plain terms, income protection is a policy that pays you a regular income if you can’t work because of an illness or injury. Not redundancy, not “I fancy a break” – but genuine, longer-term situations where your health stops you from doing your job.
It’s designed to replace up to 75% of your earnings, and it keeps paying out until you’re well enough to go back to work, or until your policy ends (usually around retirement age, often set at seventy). So it’s not a once-off lump sum. It’s a steady, monthly-style replacement income that keeps the show on the road while you recover.
Think of it as a safety net under your salary. You hopefully never need it, but if you do, you’ll be very glad it’s there.
Why bother? Won’t the State cover me?
This is the big one. A lot of people assume that if they got sick, the State or their employer would simply step in. And there is some support out there – Illness Benefit from social welfare being the main one – but it’s modest. We’re talking a flat weekly payment that, for most people, is nowhere near what they actually earn.
And employer sick pay? It varies wildly. Some employers are generous and will cover you for a few months. Plenty offer very little, and if you’re self-employed, well, the sick pay scheme is “you.” Once that runs out, your income can fall off a cliff.
So the honest answer is: yes, there’s a bit of a floor, but it’s a low one. Income protection is about bridging the gap between that floor and the lifestyle you’ve actually built – the mortgage, the rent, the groceries, the car, the kids’ activities, all the normal stuff that doesn’t stop just because you’re out sick.
The “deferred period” – the bit that confuses everyone
When you hear about income protection, you’ll quickly bump into the phrase “deferred period.” It sounds technical, but it’s simple. It’s just the waiting time between when you stop working and when the policy starts paying you.
You usually get to choose it – commonly 4, 8, 13, 26 or 52 weeks. The longer you wait, the cheaper the policy, because you’re asking the insurer to cover less.
The clever move is to line your deferred period up with whatever sick pay you already have. So if your job pays you for three months while you’re out, a 13-week deferred period makes sense – your sick pay covers the early bit, and the policy picks up right as that ends. No awkward gap, and you’re not paying for cover you don’t need.
The tax relief bit is genuinely worth knowing
Here’s the part that pleasantly surprises people. In Ireland, income protection is one of the few types of insurance where you can actually claim tax relief on your premiums.
You get relief at your marginal rate of tax – so that’s either 20% or 40%, depending on what you pay. If you’re a higher-rate taxpayer, that effectively knocks 40% off the cost of your premium. A policy that looks like it costs, say, €90 a month could really be setting you back closer to €54 once the relief is factored in.
It does mean that any benefit you eventually receive is treated as taxable income, the same way your wages would be. But the relief on the way in softens the cost nicely, and it’s one of the reasons income protection is often described as a “tax-efficient” way to protect yourself.
Who actually needs this?
Honestly? Most working people who rely on their income to live – which is, let’s face it, nearly everyone.
It’s especially worth a look if you’re self-employed or run your own small business, because you don’t have an employer’s sick pay scheme to fall back on. If you stop, the money stops. The same goes for anyone with a mortgage, young kids, or not much in the way of savings to ride out a bad patch.
If you’ve got a big pot of savings, a paid-off house and no dependents, you might decide you’re comfortable self-insuring. Fair enough. But for the rest of us juggling normal financial commitments, a few months without income is a frightening prospect, and income protection takes a big chunk of that fear off the table.
“It’s probably too expensive though, right?”
That’s the assumption, but it’s often not the reality. The cost depends on a handful of things: your age, your income, your general health, your occupation, and the level of cover and deferred period you pick. A 30-year-old office worker who’s a non-smoker is going to pay very differently to a 55-year-old in a physically demanding job.
The point is, you don’t really know until you get a proper quote tailored to your situation – and that’s exactly the kind of thing a good broker can sort out for you in a short conversation. They’ll do the legwork of comparing what’s out there rather than you trying to decode a dozen insurer websites yourself.
A few handy extras to look out for
Most decent income protection policies come with little features that are easy to overlook but genuinely useful:
- Premium waiver – while you’re actually claiming and receiving benefit, you typically don’t have to keep paying the premium. One less thing to worry about while you’re recovering.
- Indexation – your cover (and premium) can rise a little each year to keep pace with inflation, so your safety net doesn’t quietly shrink in value over time.
- Non-smoker discounts – if you don’t smoke, you’ll usually pay less. A nice reward for the lungs.
- Multiple claims – you’re generally not limited to one claim. If you recover, go back to work, and unfortunately need to claim again down the line, you can.
How to actually get sorted
The good news is you don’t have to become an insurance expert to do this properly. The simplest route is to talk to a broker who deals with all the main Irish providers – the likes of Zurich, Irish Life, New Ireland, Aviva and Royal London – and have them search the market for the best fit and price for you.
A broker will look at your earnings, your existing sick pay, your budget and your circumstances, and then point you toward a plan that actually makes sense rather than a one-size-fits-all product. And a good one won’t charge you a fee for setting it up – they’re paid by the insurer, not by you.
It’s one of those grown-up financial jobs that’s easy to keep putting off, but it really does only take one conversation to get the ball rolling. Future you – the one happily recovering at home without panicking about the mortgage – will be grateful you did.
If you’d like to find out what income protection might look like for your own situation, have a look at the team over at Yourbroker’s income protection page and get in touch for a no-obligation chat.
