For those of you who aren’t aware of this important product, income protection safeguards a portion of your income in the event of you being unable to work due to an illness or an accident. In these circumstances an employer might continue to pay you, but this often tails off fairly quickly. Of course, self employed people have no employer to keep providing their income. With income protection, after a period of time off work (typically 3 to 6 months), the policy kicks in and a replacement income is paid. This can be substantial, up to 75% of salary in some cases. However the biggest benefit is that if you continue to be unable to work, this benefit continues to be paid every year until your retirement age or the end date of your policy. It can add up to an enormous sum.
What caught our eye recenetly was the scale of claims being paid, many of which are undoubtedly continuing today. There were nearly 3,000 claimants, receiving on average €18,900 p.a. each. A startling fact was that the average claimant age was only 50, so many of these claims may continue for well over 20 years into the future*.
*Source – Irish Life 2021 Protection Claims
When we think of our wealth, we tend to think of things like our house, our possessions, our investments and even our pension fund. All very valuable, but will any of them come close to your future income stream? In many cases, your future income stream exceeds them all comfortably and for this reason, we believe it is very important to protect this valuable asset.
Now we recognise of course that there is a premium to be paid for this benefit, and that there are probably many calls on your limited discretionary income. But it is also worth remembering that without your income, everything else goes. Paying your mortgage, going on holidays, and living day to day are all dependent on your income continuing.
Thankfully paying for this valuable cover is made a little easier by the tax relief that is applied to income protection premiums. These are one of the very few remaining policies that attract marginal tax relief, up to 40% for higher rate taxpayers.
We consider income protection to be the glue of a financial portfolio. It protects your income, which if you become unable to work may pretty much disappear. Income protection then steps in, replaces your income and enables you to maintain your financial objectives, continue your saving, your pension planning, and the protection for your family, as well as your lifestyle spending. it keeps the full show on the road.
Can you afford not to protect your most valuable asset, your future income stream and at the same time put every other bill that you pay at risk too? It just might be time to have that conversation with us.
To find out more about income protection, you should get in touch with Jonathan McDonnell our Personal Financial Planner. You can email him at jonathan@castlecapital.ie or book in a meeting with him by clicking this link: https://calendly.com/jmcdonnellfinancialplanner/90min?month=2022-05