Bridging the gap with income protection

No two people are the same, nor are their protection needs. Income protection from Zurich supports you, so you can keep supporting yourself and your family in the event that you become ill or injured and are unable to work.

You might think you will be fine and don’t need income protection, but have a read of the various scenarios below and see where you fit:

Scenario one: ‘Don’t worry, it won’t happen to me’

In modern psychology this is called the ‘optimism bias’ which roughly translates to our human tendency to trick ourselves into feeling positive about an outcome that is not in line with the actual odds. The reality is that a car accident or cancer can happen to anyone. Whether you are young or old, man or woman… circumstances may arise that make you unable to work for a prolonged period of time.

Just like it is never too early to think about retirement, it’s also never too early to hedge against a potential loss of income. There is an old adage that insurance is best bought before you need it. When you are young and healthy, your access to cover will be easier, and it’s likely to cost much less. There are many advantages to buying a policy early instead of later because you will benefit from a more favourable ‘insurability’.

Scenario two: ‘The state will look after me’

When you get sick and are an employee, you may qualify for Illness Benefit¹. Illness Benefit is paid for a maximum of 1 or 2 years depending on the number of social insurance contributions you paid since you started work.

However, if you are self-employed, you have no access to Illness Benefits at all. If you are still ill when your Illness Benefits are due to stop and you are likely to be permanently incapable of work, you may qualify for an Invalidity Pension₁. This is granted after an assessment where you must prove that you are unable to work for the next 12 months. This can be hard to prove and easy to challenge.

If you do not qualify for an Invalidity Pension and have a disability that is expected to last for a year or more, you may qualify for a Disability Allowance₁. As a last resort you may get a Supplementary Welfare Allowance₁.

However, living on public health benefits can be extremely challenging. None of the personal rates in any of these schemes exceed €225.50 a week with limited additional payments available for (adult) dependants₁. These maximum personal rates roughly translate into less than €1,000 a month which will hardly cover your monthly bills.

In reality, one in five persons in Ireland that are unable to work due to long-standing health problems are living in consistent poverty₂. The state does in most cases simply not provide sufficient Protection.

Scenario three: ‘I have savings’

What if you set aside money on a regular basis to save for a rainy day? Does this provide an alternative solution? While this could be the case for some, building a personal safety net takes time. Emergency funds or ‘rainy day’ savings pots that Irish households have vary substantially. Economically precarious households have less than a week’s worth of spending on essentials in liquid savings. Even more affluent households only have somewhere between 7- and 10-months’ worth at their disposal and around 1 in 6 households have no savings at all₃. Losing your income can be costly. What if you become permanently unable to work at the young age of 45? Will you be able to pay your rent, mortgage, and households bills until you start receiving a pension? And will your pension be sufficient when you do not have a regular income to save for it? A (long-term) disability or illness may also result in additional costs such as a rise in medical bills or additional spending on childcare or household help.

Scenario four: ‘My partner has a regular income’

At its core, this argument makes sense. Why would you put money into an insurance policy if your partner’s income could cover the basics, especially when your partner provides the largest part of the family’s income? Indeed, if there is a partner with a (much) high(er) income, this can be true. More often than not, losing one source of income will severely impact a couple’s standard of living. People tend to overestimate their ability to cut costs. Unfortunately, your partner’s income is not guaranteed either. Your partner may also lose their ability to provide an income. And although Ireland has one of the lowest divorce rates in the EU₄, the number of couples filing for divorce has been on the rise₅.

Scenario five: ‘It is too expensive’

The most common reason why people do not take out this policy is because they think it is very expensive. More often than not, this is a misconception. For example, for as little as €16 a month, a 40 year old could take out income protection that would pay €1,000 a month if they were unable to work due to illness or disability₆. This is the same as the average monthly premium for pet insurance for a young dog₇. Income Protection is one of the most flexible protection products in terms of budgeting. To lower the premium, you could extend the deferred period, reduce your monthly benefits, remove indexation, or shorten the duration of the contract. Remember, any Income Protection is better than no Income Protection.

Scenario six: ‘I’ve got Income Protection at work’

When deciding if you need additional Income Protection, it is important to find out what your employer would provide you with if you needed to take time off of work due to illness or injury. It is possible that you have sufficient cover but as personal circumstances differ, whether you can get by on the replacement rate provided by your employer is not always guaranteed. Many corporate Income Protection policies do not cover the full amount of 75% of their employee’s income (before tax, minus any state illness benefit).

Zurich’s claims experience

Zurich’s most recent income protection plan is relatively new, we’ve been paying IP claims for 40 years. In 2022 we dealt with over 360 individual claimants, and we are currently paying almost €9 million annually in claims₈.

One of our strengths is our ‘early intervention and rehabilitation’ programme, which may help you get back on their feet faster and return to a normal way of life.  And if you return to work on a reduced salary – whether in the same occupation or an alternative occupation – you may be eligible for a proportionate benefit payment.

Supporting you and your family

Zurich provides you with several options to build a policy around your needs. If you’re unsure what your needs are find out more here.

When it comes to, Zurich is committed to doing the best we can for our customers. So, if you’d like to take the next step, get in touch today. Find a financial advisor located near you in Ireland or get in touch with Zurich’s financial advisors to discuss your income protection needs.  

Sources:

₁ Citizens Information, August 2023

₂ Central Statistics Office, Survey on Income and Living Conditions (SILC), 2022

₃Central Bank of Ireland, Quarterly Bulletin 04, October 2022

₄Eurostat, How many marriages and divorces took place in 2020?

₅Courts Service Annual Report, 2021

₆ Cover based on 40 year old non-smoker, office based employee, deferred period of 26 weeks, cover to age 60 (20 years), including government levy (currently 1% as at 1 September 2023 and may change in the future).

₇Switcher, How to get the best value pet insurance in Ireland, 2023

₈Zurich Life, March 2023

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