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Income Protection: Is it worth the cost?

Great question! The best way to reflect on this is to look at the actual numbers. This answer may surprise you.

I recently watched an industry related, educational webinar with Zurich Ireland. I was drawn to it as it was related to Income Protection and I’m a massive fan of income protection cover.  Mostly due to the fact that I have been advising clients on it for well over 20 years, which has allowed me see people claim from their policies. All people who never thought they’d need to claim from a policy by the way!  Just as importantly, it has allowed me to see how people are treated by life assurance companies during a claim. Which, as it turns out, is very well indeed.

One thing in particular that resonated with me in this webinar was how they addressed the issue of cost. No one likes paying for things that they feel they will get no benefit from, so it is vital, that as an advisor, I make my clients aware of the benefits. [Contact me if you’d like to organise a Zoom chat to go through the benefits]

Would you take a 5% cut in pay to be guaranteed your income up to retirement age?

They addressed the cost was by asking people – If your employer were to offer you a guaranteed income up to retirement age if you were unable to work due to any illness or accident in exchange for a 5% pay cut, would you accept?

It turns out that most people would gladly accept. Think about it… a 5% drop in income, to make sure that you’d earn for the rest of your working life?! It’s a no brainer. Your income is vital – It pays for everything…

I decided to do the sums and here’s what I found;

Assumptions: You’re 35 years old. You earn a gross annual income of €80,000 from your office based job. You use this money to pay for everything. Your mortgage or rent, groceries, electricity, petrol, holidays… everything.

Assuming you’re single, you will end up with net income of €54,027 a year out of your €80,000 salary. Let’s say you took the maximum allowable income protection benefit on an annual income of €80,000, less the disability benefit of €12,064 (Which would be your only income every year if you couldn’t work).

The true cost of peace of mind.

An income protection policy that will cover you for €47,936 a year (Which you’d receive in addition to the €12,064 State benefit = total income of €60,000 a year), up to age 65, with guaranteed premiums and whatever benefit paid to you during a claim increasing by 3% a year, with a deferred period of 26 weeks – basically, a great policy with frills included, would cost you €90.47 per month gross. You‘d get tax relief on this at 40%, so the actual true cost to you is €54.28 per month or €651.36 per annum.

Put that against your net annual income of €54,027 and it actually just works out at 1.2% of your income!

So, to all those that said that they would take a 5% pay cut to guarantee an income for the rest of your working life if you were unable to work due to ANY form of illness, I say “No need!!”. It will cost you  just 1.2% of your income. That’s amazing!

Summary:  If you do not have an income protection plan, your income will be €12,064 a year from State disability benefit if you can’t do your job due to some form of illness.  If you are self employed, you won’t get this.  Your income will be zero.  That means no new money coming into your household.  

Life with an Income Protection Plan is easier.

With an income protection plan, the person in this scenario would have an income of €60,000 a year.  Not a million miles off what they used to earn. And certainly enough to keep the show on the road.  Enough to remove the additional worries that zero income would bring.

Which camp would you rather be in?  That’s a lot of peace of mind for just €54.28 a month!

If this is something that you’d like to have a chat about or you’d like to work out what your % of income is, please get in touch with a Family Cover adviser. Or you could complete this form here and I will email your quote to you.