Are There Any Useful Alternatives to Income Protection?

To the tune of Salt-N-Pepa: let’s talk about claims, baby.

Imagine those words and that tune coming out of the face of an insurance broker from Offaly.

The very definition of hip hop.

Or Hip Pop, the new wave of hip hop championed by said insurance broker.

Now, the thing about claims is that people have wildly incorrect opinions about it. Even people who have insurance think it’s a bit of a con. And I get it, I do: it feels like a gamble paying a faceless company a chunk of money every month hoping your family get paid if you die.

But over 97 per cent of all Life Insurance claims are paid out – and it’s usually the applicant’s fault for lying or something like that if they’re not.

When it comes to Income Protection, when people are out on a claim, they are unable to work for an average of 5 and a half years.

Imagine having no income for that length of time?

Seriously, take a minute and watch your current standard of living crumble into tiny pieces all around you.

What is Income Protection, and why is it the very best?

Income Protection, outright, is the best way you can protect yourself from whatever life throws at you. No messin’, no foosterin’. It’s the insurance that’s worth its weight in gold because: it pays you up to 75 per cent of your salary if you’re unable to work long-term for any reason and the beauty is it pays out UNTIL YOU GET BACK TO WORK.

It’s better than Serious Illness cover because SIC only pays out for a certain amount of illnesses. SIC is a tax-free lump sum, and when it’s gone, it’s gone. You’d be surprised how quickly you’ll burn through that if you have no income coming in for years. And remember you have to get a specific illness covered in your policy to qualify for a pay-out in the first place!

And, sure, Life Insurance is the biz – especially if you have kids – but it’s never really all that much use to you, the insured because you have to die to receive it. Which, you know, bit of a buzzkill.

I’d go so far as to put my neck out and say that Income Protection is even more critical than your pension, investment, and savings.

You’re probably thinking, “Jaysis now, there’s the insurance broker making his pitch to get my money.”

And while I do like business and making money (both also very hip hop) the one thing you’ll see about the team at lion is that we don’t do bullshit. We’re not here to make a fast buck; we’re here to get long-term clients on policies that will actually protect them.

So let’s look at this in real terms.

Joan is 45 and an accountant. She’s got a lovely husband called Bill. Joan is in an awful car crash and has health complications and a roaring case of PTSD and depression.

Poor Joan can’t go back to work, so she’s facing several years on the side-lines.

Her salary is €50,000.

Let’s say it takes her five and a half years (remember: the average length of a claim) to get healthy and well to go back to work.

She’s looking at losing out on €275,000 in earning (that €50,000 x 5.5). That’s a lot of money. Realistically, it’s someone’s entire life. It’s rent or the mortgage; bills; food, water, clothes. Fun stuff. It’s everything. And most households can’t afford to take a hit like that.

Especially when State benefits are €203 a month…for two years.

Money is the last thing Joan needs to be thinking about as she recovers, but it’s bound to take a significant toll on her and lovely Bill. 

Bill, by the way, is also a connoisseur of Hip-Pop, who raps under the stage name of Dolla Bill.

That may be my most dad joke ever.

So, she and Bill are now down a significant amount of money. How is she going to save? Or invest in her pension? Or pay for her Life Insurance? It’s all going to grind to a halt.

Sounds fairly grim so far, doesn’t it?

In reality, it was worse, Bill, bless him, gave up his own job to become a full-time carer for Joan. Their income plummeted. Thankfully they had cleared their mortgage already, accountants are a savvy bunch. 

But what if Joan had Income Protection?

She could continue to save, invest and pay for her other insurances thanks to that cushion. Bill could be her carer, knowing there was still a decent income coming into the house. 

It’s often sensible to insure the goose, as well as the eggs.

Now, do we agree on how vital an Income Protection plan is?

If not, watch Marc’s story.

But are there alternatives to Income Protection?

Sure, but they’re not nearly as good.

It’s kind of like wanting to drive a big shiny Lamborghini and ending up with a pair of rollers skates instead.

1. Using your savings to cover yourself while you’re out of work long-term

Our pal Joan, being an accountant, is very good with money. (Don’t worry, it’s not like I said she was a banker, *cough cough cough*.)

Her pay of €50,000 equals out to about €3,000 take-home, after-tax. She has a considerable kitty of €50,000 saved. Maybe she’s planning to use it as her pension, or perhaps she’s planning to circumnavigate the planet in a custom-built hot air balloon for two years.

It’s Joan’s money; she can do whatever she likes with it.

So how long with this big ole nest egg last? Just 1 year and 5 months.

And if you recall, the average length of an Income Protection claim is 5 and a half years.

You know I mean business when I break out a beautifully-drawn graph. Again, very hip hop.

The y-axis is months, FYI.

Now, this graph is if Joan spends as she usually would. But here’s the thing: she shouldn’t have to live frugally. Beans and rice only become a reality if she doesn’t have Income Protection or appears on #IACGMOOHeeeere

The whole point of saving is so that you can enjoy beautiful things. Feck the rainy day fund, it should be a sunshine fund. Insure against the rainy days instead! What’s the point of living if you can’t spend your hard-earned spondoolies joyfully?

Your savings shouldn’t need to be your replacement income. That’s precisely what Income Protection is for!

2. Your employer offers an Income Protection scheme/really great sick leave

I bring this up quite often on the blog, but it’s essential. You’re not actually legally entitled to any sick leave, because that’s the system we live in.

So I wouldn’t be banking on paid leave. Now, it does vary from company to company, so I suggest you give Helen in HR a buzz.

Off you go. I can wait.

Average sick pay entitlements

• Public sector: 3 months’ full pay, 3 months’ half pay.
• Private sector: 4 weeks.
• Self-employed: No sick pay.

She’s not great, is she? Running off to a cushy public sector job is your best bet, but even that well is going to dry up verrrrrry fast.

3. Our pals in the State will cover you

Lol.

Our pals in the State are very good at looking out for themselves, and not a whole lot else.

Just look at the housing crisis.

Now, I’ve mentioned this briefly earlier, but State Illness Benefit caps out at €203 a week.

That’s the max.

And you can only receive it for a maximum of two years.

God speed.

4. You have Serious Illness Cover

I mentioned this earlier briefly as well, but let’s tangle with this devil again here so you come away with complete clarity about what you should do next. (In brief: go get yizzerself some Income Protection.)

• Serious Illness Cover: Pays a lump sum if you fall sick with one of the illnesses covered in your policy. You need to hit specific terms and conditions on these illnesses too. Lots of red-tape, basically.
• Income Protection: Pays you up to 75 PER CENT of your salary if you are unable to do your job for ANY REASON until you get back to work. Pre-existing health conditions may be excluded.

All-caps, pals, because it’s crucial.

Some more reasons where they differ:

• The most common claims under Income Protection are for back pain and mental health issues. Critical Illness policies don’t cover back pain or mental health.
• Income Protection ensures you have a continuous monthly income until you get back to work.
• Serious Illness Cover pays out one lump sum. It should be used to cover unexpected bills that occur as a result of your illness: e.g. surgery, prescriptions, travel, modifications to your home.
• You can claim back up to 40% of your Income Protection premiums, so it’s more for less, basically.

Here is more detail on the differences between Income Protection and Serious Illness Cover.

Do you have a money machine in your kitchen?

As you can see, the alternatives to income protection aren’t beneficial, so I’ll leave you with this question:

Imagine you had a machine that could print money in your kitchen, would you insure it? Of course you feckin’ would!

If you’d like me to make a recommendation and send you a quote for income protection, please complete this short questionnaire and I’ll get back to you asap. 

As for cost, well, let’s say our pal Joan wants to get Income Protection. She wants to insure the full wedge of 75 per cent, with a waiting period of 8 weeks. It’s around €55 a month, after-tax relief. I bet you pay more for internet and TV.

Think about it!

Nick McGowan
lion.ie | making life insurance easier