Income Protection

IPI

What is it?

Income Protection Insurance (IPI) offers long term financial security by providing a replacement income in the event of prolonged illness or disability which may prevent you from carrying out your own normal occupation or with some contracts, any suitable occupation.          

Who is it for?

Income Protection Insurance is designed for those who have either limited or no cover from their employer or those who are self employed and who wish to effect such protection to cover to guard against financial hardship in the event of prolonged illness or disability.

How does it work?

Benefit Limits – All insurers impose a limit on the amount of benefit you can claim so that it is impossible to receive a higher level of benefit than your total earnings while working.  They will take into account any payments made from other insurers as a result of your illness or disability and any benefits you are entitled to under the National Insurance scheme (for example, invalidity benefit).

Indexation of Benefits – Indexing your benefit level allows you to maintain the real value of your protection as it automatically increases each year, regardless of your state of health at that time.  Your contribution will also increase each year to reflect the increase in the benefit level.  If the benefit level is increasing by 5% then the total premium may increase by slightly more than 5%.  This is because the part of the new premium that relates to the increase in benefit will be based on your age attained rather than your age at the time your contract commenced.

Deferment Period – Benefits can become payable after one month of an illness or accident preventing you from working, or you can select a deferment period of up to two years which will greatly reduce the cost of the insurance.  If you are employed it is sensible to select a deferment period to coincide with when your employer will stop paying your salary.

It may also be to your advantage to stagger benefits i.e. to apply for a proportion of your benefit on a shorter deferment period and the remainder on a longer one.  In this way, for example, it is possible for an employee to mirror his or her employer’s sick pay scheme.  For the self employed this would have the effect of providing potentially more useful benefits at a more affordable price. 

Types of Cover

• Guaranteed Cover
  Under this plan the rate at which premiums are payable is guaranteed by the insurance company for as long as you maintain contributions.  In the long term this can be an extremely valuable feature
• Reviewable Cover
  Under this plan premiums are kept to a minimum as you, rather than the insurance company, are shouldering the risk of changes in morbidity experience.  The insurer has the right to review premiums based on claims history, which could mean premiums increase significantly at a review.  Reviews are normally carried out every five years but may vary from one insurer to another.
• Unit Linked Cover
  Similar to ordinary reviewable cover, except that premiums and/or the benefit level under this plan are also reviewable against investment performance.  The contributions from all participating plans are paid into a single unit linked investment fund from which either all or a proportion of claims are paid.  Your plan is regularly reviewed, looking back at claims and investment experience and making further assumptions about the future.  Depending on the results of the review your premium could increase or decrease.  At the plan termination date there may be a cash value to your plan.