Is Income Protection really necessary?

SIncome Protection is often likened to the adhesive that holds a financial portfolio together. The most profound setback to one's financial situation is likely to stem from a loss of income, coupled with the challenge of replacing it. Without income protection in place, the whole financial plan will be built on sand.

Regrettably, job loss is a reality that individuals may face intermittently. However, what tends to unfold is that these individuals often secure new roles elsewhere or embark on a new career trajectory. Consequently, while their income may experience a temporary dip, it typically rebounds before long. These individuals find themselves in the fortunate position of being able to continue their work.

 

Facing the inability to work due to illness or injury introduces an entirely different set of challenges. This circumstance not only entails minimal or no reduction in life costs but may also give rise to new expenses such as medical bills and care fees. On the income front, while social protection benefits exist, they often provide no more than essential subsistence payments. Consequently, there is frequently a notable decrease in income, coupled with potentially increased expenditures.

It should be noted that Self-employed individuals (those who pay PRSI at Class S) do not qualify for any state illness benefit.

Income protection serves as a safeguard for your most crucial asset, which is your income! In the event of illness or injury. Despite its pivotal role, this crucial pillar is not universally integrated into everyone's financial plan.

 

Income protection is necessary for several reasons:

 

1. Financial Stability: Income protection ensures that individuals have a stable source of income in the event of unforeseen circumstances such as illness, injury, or disability. Without this protection, individuals and their families may face financial hardship due to a sudden loss of income.

 

2. Maintaining Standard of Living: Most people rely on their income to cover essential expenses such as housing, food, and utilities. Income protection helps maintain a certain standard of living by providing a steady stream of income even when the individual cannot work due to illness or injury.

 

3. Debt Obligations: Many individuals have financial obligations such as mortgages, car loans, or student loans. Income protection ensures that these obligations can still be met even if the individual is unable to work temporarily or permanently.

 

4. Medical Expenses: In the event of illness or injury, medical expenses can quickly accumulate. Income protection can help cover these expenses, including costs not covered by health insurance, such as deductibles, co-pays, or alternative treatments.

 

5. Peace of Mind: Knowing that there is a financial safety net in place can provide peace of mind for individuals and their families. It alleviates the stress and anxiety associated with worrying about how bills will be paid if one cannot work due to unexpected circumstances.

 

6. Long-Term Disability: While many people assume they will only be out of work for a short period due to illness or injury, some conditions can result in long-term or permanent disability. Income protection provides ongoing financial support in such cases, ensuring the individual's financial well-being over the long term.

 

7. Dependency Obligations: Some individuals may have dependents such as children, elderly parents, or disabled family members who rely on their income for support. Income protection ensures that these dependents are cared for even if the primary earner is unable to work.

 

8. Retirement Savings: Loss of income due to illness or injury can significantly impact retirement savings goals. Income protection helps individuals continue to contribute to retirement savings accounts even during periods of incapacity, maintaining their long-term financial security.

 

How much of your income do you need to protect?

Generally, this is between 50%-75% but this will depend on your unique circumstances.

Determining the appropriate amount of income protection is a crucial consideration. Although income protection continues to benefit from tax relief at your highest marginal rate, it remains an expense that none of us relish.

Despite the discomfort associated with paying for a benefit you hope to never use, we need to delve into your specific situation during our financial planning process. We will assess your expenses and how they could be affected by a potential loss of income. Striking the right balance is key. Ensuring sufficient coverage to meet your needs in case of income loss while avoiding unnecessary expenses. Additionally, we will explore any sick pay schemes provided by your employer, as they may influence both the coverage levels and the cost of a policy tailored to your requirements.