Income protection is a form of insurance that will pay out a monthly income if you are unable to work due to illness or injury. As it can be difficult to predict how much money you’ll need for expenses when you’re unable to work in the future, income protection plans are often purchased by people with other types of insurance cover (like life cover) as an additional level of security. If you have an income protection plan with Irish Life Group, there’s no reason why you shouldn’t benefit from tax relief on your premiums! In this post we’ll explain what the tax implications are for income protection plans in Ireland and give tips on how best to make use of the available tax-free thresholds
How much tax do you pay on your income protection in Ireland?
When it comes to tax on income protection in Ireland, there’s good news and bad news.
- The good news is that income protection insurance premiums are not deductible from your gross income. So if your income is €50,000 per year, that’s the amount you’ll pay tax on regardless of how much you spend on insurance premiums.
- The bad news is that while the cost of income protection may not be deductible from gross income (income before tax), it could still affect net or taxable income—the amount left over after paying all taxes and levies. If this applies to you, then this article will help explain how much tax is payable on your earnings and what steps can be taken to reduce its impact on net or taxable earnings.
What is the difference between life insurance and income protection?
Life insurance is a contract between the policyholder and their insurer. The policyholder pays premiums, and in return the insurer pays out a lump sum on death. Income protection, on the other hand, is a contract between the policyholder and their insurer too. However, instead of paying out a lump sum on death like life insurance would, income protection will pay out monthly payments for a set period of time should you suffer from an illness or injury that prevents you from working (hence “in”come “protection”). You can think of it as similar to sick leave: instead of having to take unpaid leave when sick or injured, your employer will continue paying you during this time until your benefits run out.
When does my income protection plan become active?
Your plan becomes active as soon as your premium is paid. This can be done in one of three ways:
- You pay for the policy at the time you sign it.
- You pay for the policy when you take out your plan, even if that takes place after signing it.
- The insurer pays for it and deducts this cost from future premiums (usually monthly).
Are there any benefits to taking out insurance early?
If you’re planning to take out a policy, it’s important to understand what benefits there are to doing so early.
- The earlier you take out an income protection plan, the longer your income protection insurance will last. The longer your policy lasts, the more money you’ll save on premiums.
- Waiting too long could result in having to pay higher premiums than if you had taken out an income protection plan earlier. This is because insurers usually charge older people higher rates than younger ones because they tend not to live as long as young adults and less likely still when compared with those who are middle-aged or older. In addition, many insurers won’t offer new policies for people over a certain age (usually somewhere between 60 and 70).
How much can I get from my income protection plan?
How much you can get from your income protection plan depends on the plan you choose. The amount of cover also depends on your age and health. You can get up to 70% of your income covered, but this will depend on the insurer.
If you are self-employed, there may be other options available to you such as private medical insurance or paying into a pension fund which will provide some protection in the event that something happens that prevents you from working.
Can I benefit from tax relief on my income cover as a self-employed person?
Yes, you can. You may be able to get tax relief on your income protection premiums. The amount of tax relief you receive depends on your level of income and number of dependents.
The amount of tax relief will differ depending on whether you’re claiming for a pension or for another type of insurance product, such as life insurance, critical illness cover or illness benefit (as part of an income protection plan).
Tax relief for pensions and other insurance products is calculated differently so it pays to check with our advisors before deciding which type suits you best.
What is the difference between full-time and part-time employees?
The difference between full-time and part-time employees is that the first group is entitled to more benefits. A person who works 30 hours per week is not considered a full-time employee, but a person who works 40 hours per week most certainly is.
The amount of income protection you can receive (or in some cases, your employer) depends on what kind of employment situation you are in. If you are working as a full-time employee, then it’s possible for you to get up to 70% of your salary each week if something happens to prevent you from working at all. It’s also possible for certain employers to offer more than 70% of an employee’s salary if they wish! However, there are restrictions on how much benefit can be paid out; these include:
As always, seek professional advice before committing to an insurance plan.
As always, seek professional advice before committing to an insurance plan. The importance of reading the fine print cannot be stressed enough. It is also important to understand the benefits and limitations of your policy and seek professional advice when you need it.
For more information on Income Protection Insurance in Ireland contact us today!
As you can see, there are a lot of factors at play when it comes to your income protection plan. The best way to make sure that you’re getting the most out of your insurance is by contacting an expert who can help you find the right policy for your needs.