Income Protection policies made simple

If you are self employed (or PAYE),  and you are thinking of taking out an income protection policy, there are a few things you will need to know before you go signing any contracts with a financial advisor.

Income Protection (I.P.) is like an insurance policy which means if you are unable to work due to illness or an accident you can ensure you still have an income coming into your pocket !

The catch is though with I.P. you can only get this income after a number of weeks – normally 13.

You will therefore have NO income for the first 13 weeks. This can in some policies be 26 or 52 weeks – the higher the deferred term, the cheaper the policy.

However, once you get into a payment situation, you can receive an income up to normal retirement age of 65.

One of the major attractions with I.P. policies is you will get tax relief on the payments.

Tax relief can be up to 41% so if your policy costs your €60.00 per month, in reality it is only €35.00.

This relief is claimed when your accountant puts through your annual return.

Self employed people have little comeback if they are off work due to sickness or injury so it can be advisable. PAYE, will get about €200.00 from social welfare, but if you have a mortgage this is a long way short of covering your costs.

NB,Self employed –  the amount you want to claim is dependent on your income in your annual accounts.

Do not go insuring yourself for an amount higher that what is in your accounts as you will not get this amount. The maximum you will get is approx 75% of your total earnings less any social welfare entitlements.

If you would like further advice on the above please drop me a line

jason@mcdowellaccountants.ie

or  telephone 071 91 63400