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Income Protection or Serious Illness Cover?

income protection or serious illness cover

Have you come to terms with the fact that you’re kinda screwed if you get sick and can’t work?

Maybe it’s happened to a friend.

That’s when most people reach this page.

Protecting your income is the grown-up thing to do especially if

  1. you wouldn’t cope financially without your salary
  2. you have children
  3. you (or your partner) is self employed

You might have heard about income protection or have some clue about serious illness cover but you need to know more.

You’ve come to the right place.

Here’s a breakdown of the key differences between income protection (also known as Permanent Health Insurance) and serious illness cover (also known as critical illness cover and specified illness cover).

Income Protection v’s Serious Illness cover

When buying car insurance, do you choose Third Party, Fire & Theft or Fully Comp?

In some ways, personal life insurance is like to car cover.

Critical Illness is like Third Party, Fire & Theft.

Third party, fire and theft insurance covers you for any damage caused to a third party or their property if you are involved in an incident, while also covering your own car if it’s damaged by fire or stolen.

Serious illness cover pays out for pre-defined, specific conditions only like types of cancer, heart attack and stroke.

Income Protection is like Fully Comp.

Comprehensive car insurance provides you with a greater level of protection as any damage to your own vehicle resulting from an incident, a fire, or theft will be covered by your insurer, as well as any damage to other parties.

It covers anything that incapacitates you or stops you working like stress or back pain (neither of which are covered by serious illness cover)

Most of us prefer the security that fully comprehensive car insurance offers.

H/T to Matthew Chapman for the analogy.

What’s the difference between serious illness cover and income protection?

The main differences between income protection and serious illness cover are as follows:

income protection versus serious illness cover comparison chart

Any illness v specific illness

Salary protection will pay out for any illness, injury or disability which prevents you from working (pre-existing conditions may be excluded)

But serious illness cover will only pay out if you contract a specific illness as defined on your policy.

=> more ways to claim on income protection

Stress, back pain and muscular issues

Income continuance will pay out if you can’t do your job due to a mental health issue or if you hurt your back/pull a muscle.

However, a serious illness policy won’t cover you.

=> income protection covers all conditions that stop you doing your job (excluding pre-existing conditions)

Continuous income v once off payout.

Serious illness cover pays you a one time, tax-free, lump sum on diagnosis of an illness defined in your policy.

Whereas income insurance pays you a regular, taxable income if you’re unable to do your job due to any illness.

Tax relief on income protection

You can claim tax relief on income protection at your marginal rate. This means you can get up to 40% off your premiums.

I’m afraid, there’s no tax relief on serious illness cover.

But you’re taxed on income protection payouts

What the taxman giveth with one hand he taketh away with the other.

Although you get tax relief on your premiums, you pay income tax, PRSI, USC on the payout

Serious illness payouts are tax-free.

Looking at it another way, you get guaranteed tax relief on income continuance even if you never make a claim.

Multiple payouts on salary protection

You can claim as many times as you need to on your income protection. Your plan will continue even after you have claimed, once you keep up the premiums.

Compared to your serious illness policy which will end once you make a claim.

What does income protection payout for?

Any illness, injury or disability severe enough to prevent you from doing your job (pre-existing conditions are excluded)

Even stress and back problems are covered and these are the main causes of claims.

income protection claims 2016

You can read more about what income protection covers you for here.

What does serious illness payout for?

Only the illnesses specified/named in your policy are covered.

So serious illness cover doesn’t pay out for stress or back pain (unless the back pain is so severe you can fulfil the permanently disabled definition)

How long must you wait before you can claim?

After your chosen deferred/waiting period (4,8,13,26 or 52 weeks), you’ll receive a regular monthly income until you can get back to work or until the end date of your policy.

How are serious illness claims paid?

You’ll receive a single tax-free lump sum.

One word of warning, if you have serious illness cover on your policy and it’s assigned to the bank for a mortgage, the bank will receive any payout.

Read more here – Don’t add serious illness cover to your mortgage cover.

Is there tax relief available on income protection?

Yes, you get tax relief at your normal rate (20 or 40%).

That means a higher rate taxpayer paying €100 per month in premiums can get tax back of €480 per year.

Is there tax relief available on serious illness cover:

No, tax relief isn’t available on serious illness cover.

Are income protection payouts tax free?

No, income protection payout are taxed as income at your marginal rate at the time of claim.

Are serious illness payouts tax free?

Yes, tax free.

How do you work out how much income protection or serious illness cover you need?

Income protection

You can insure up to 75% of your income less state illness benefit of €10,556 per annum.

Let’s say you earn €100,000

If you’re an employee, you can cover a maximum income of €64,444 per year (75% x €100,000 – €10,556)

If you’re a sole trader or self-employed company director, you can insure €75,000 because you don’t get illness benefit from the state. You get nothing if you can’t work. Your income drops to a big, fat ZERO.

Get a quote for 75% cover – if you can afford it, buy it.

Critical illness cover

You choose the amount of insurance you need

e.g if you buy €75,000 serious illness cover, you’ll get a tax-free lump sum of €75,000 should you contract a specified illness

Pros and cons of income protection and serious illness cover

Income Protection – Pros

  • For the self-employed, it’s essential because you don’t get any state illness benefit. If you stop working, your income falls to zero.
  • You get full tax relief on your premiums.
  • It covers absence from work due to stress or back problems.

Income Protection – Cons

  • It’s difficult to obtain if your occupation involves manual labour or the risk of injury is high.
  • The underwriting is stricter that serious illness cover.

Serious Illness Cover – Pros.

  • Your occupation doesn’t affect your premium.
  • It gives you a tax-free lump sum that you can use to pay medical bills or cross things off your bucket list.
  • The lump sum you claim could pay off your mortgage allowing you to focus on getting better without money worries.

Serious Illness Cover – Cons.

  • The definitions of the specified illnesses are complex.
  • Cover varies significantly from insurer to insurer

Who offers the best serious illness cover

I’ve considered income protection but feel that any absences of more than a couple of months are likely to be due to a serious illness, at which point serious illness cover would kick in?

I see where you’re coming from but I’m afraid serious illness cover isn’t that comprehensive.

The main reasons people cannot work long term are mental health and musculoskeletal disorders (limbs, back and neck pain).

Remember, serious illness cover won’t pay out if you’re out of work due to stress or back pain.

With serious illness cover, there’s a danger that the illness that prevents you from working either

  1.  isn’t covered
  2.  is covered but the severity of your condition doesn’t meet the definition in your terms and conditions.

For example, you’d assume if you contracted cancer, your serious illness cover would pay out immediately?

Afraid not, cancer has to be of a specified severity in order to get a full payout.

What you don’t want is to be out of work and hoping your illness gets so severe that you get a payout.

That’s an awful situation to contemplate.

Income protection, on the other hand, pays out if you cannot do your job due to any illness, injury or disability.

If your budget can stretch to it, by all means, put some serious illness cover in place too…maybe one year’s after-tax income.

That payout will give you the flexibility to take 12 months off work unpaid if you suffer a critical illness so you can focus on getting better without money worries.

But to safeguard your income long term, you can’t look beyond income protection.

Did you know the average duration of an income protection claim is 7 years? Your serious illness payout would be long spent, your income protection payout would continue.

Income Protection or Serious Illness Cover – Conclusion

You don’t have to choose either income protection or serious illness cover.

It might be a case where buying a little of both is the best way to protect yourself.

Serious illness cover is for immediate, short term bills.

Income protection replaces your income and allows you to get on with your life if you’re out of work long term. Think of it as long term disability cover.

Income protection and serious illness cover are complex products, please take advice from a professional (or me if they are none available 🤣)

Want to learn more about income protection – have a nose through our free guides.

Here’s a comparison of income protection and serious illness cover from The Sunday Times that we helped with:

Over to you

If you’re weighing uo income protection and serious illness cover but are a bit stuck, let me help…that’s what I’m here for.

Complete this questionnaire and I’ll take a look at your personal situation and make a recommendation for you.

Prefer a quick chat first, excellent, I look forward to hearing from you


Chat soon.


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Income Protection for the Self Employed

You and I have something in common.

Apart from being so damn pretty.

Like me, you’re self employed…(or unemployed and bored, why else are you reading this blog post?)

Like me, you’ve taken all the risk – maybe left a cushy role as an employee where where you had the comfort of knowing how much you would get paid every month. You left behind benefits like income protection and death in service. And you waved goodbye to illness benefit from the state should you get sick.

And, like me and “she that must not be named”, you may have felt like this just before you handed in your resignation:

Don’t know where to start?

Have a nose through our free life insurance guides

View our guides

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As Ireland's leading life insurance broker, we specialise in comparing the rates and policies from the top five Irish life insurance providers and offering the very best value quotes to suit the individual needs of our clients. Our expertise lies in finding a suitable insurance plan for those with specific needs, be it a particular illness, occupation or claim history, we've got you covered in every sense!

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