Permanent Health Insurance (Income Protection)
Permanent Health Insurance (PHI) also known as Income Protection, Salary Protection or Income Insurance provides you with a regular replacement income in the event of you suffering a loss of earnings due to ill health or disability which has lasted longer than the deferred period you choose in the policy. The deferred (waiting) period will typically be either 4, 8, 13, 26 or 52 weeks. PHI is designed to make up a loss of earned income arising from being unable to work for a prolonged period, due to Ill health or disability. For example, if the deferred period is 8 weeks, you must be out of work for at least this period before the policy would start paying you an Income. The shorter the deferred period, the higher the cost of the policy as the premium will pay sooner.
People choose their deferred period often to tie in with their sick pay from their employer.
Public Sector workers for example have
3 months of sick pay and 3 months of half pay for a rolling four-year period however on an exceptional basis may be granted sick leave pay as follows:
- The person must have a maximum of 183 days on full time payment in the previous rolling 1-year period.
- Followed by a max of 182 days on half payed days in the previous rolling one-year period.
- Subject to 365 days maximum paid leave in the previous 4 year period.
Once this standard sick leave is exhausted, then temporary rehabilitation remuneration (TRR) could be allocated if the employee is not seen fit to work for a further 365 days. This payment may continue to be paid for a further 730 days subject to certification of a reasonable possibility on returning to work. To qualify for TRR an employee in the Public Service must have a pensionable reckonable service of at least 5 years on the date you applied. The temporary rehabilitation remuneration rate of pay is the same as the rate of pension an individual would be paid if they had to go into retirement on ill health grounds on that date. We can make estimates of your cover to ensure that you have the appropriate amount of income protected.
The sick pay provided by employers in the private sector varies with some companies providing little or no sick pay however some companies (typically larger companies) provide one to twenty-six weeks. It is important to clarify with your employer what they provide in the event of ill health so that you can plan your protection needs appropriately. Workers in the Private Sector will qualify for the State Illness Benefit which is currently €203 per week for those earning over €300 per week once they have paid the appropriate amount of PRSI contributions.
Duration of Ill paid benefit is a maximum of:
- 1 year (312 payment days) from when you began work and have social insurance contributions paid between 104 and 259 weeks.
- 2 years (624 payment days) from when you began work and have social insurance contributions paid up for at least 260 weeks.
If you are sick and permanently unable to work and satisfy the PRSI contributions and conditions, you may qualify for the Invalidity Pension once the Illness benefit ceases.
The self-employed such as certain company directors and people in business on their own or in partnerships are the most at risk in the event that they are incapable of working due too ill health, this is because the Class S PRSI contribution which they pay does not qualify for the illness Benefit. As such Income Protection is even more important for these workers.
Payment of Benefit
The Permanent health insurance benefit is paid until the person insured is seen fit and able to return to work or the cessation/expiry age. Typically, people choose a cessation age linked to their retirement age with their employer or if self-employed to when they plan to retire and/or the age at which they will receive the State pension. As you age, your premium costs will increase, if the benefit is payable, it could be paid for a longer period.
PAYE taxpayers can get immediate tax relief on PHI premiums paid by deduction from their wages by their employer, i.e., the PHI premium is deducted from salary before deduction of income tax, and so receive immediate tax relief on the PHI premiums. PHI premiums are not deductible for the purposes of USC or PRSI. The self-employed can claim income tax relief on PHI premiums, through their annual tax returns. In both cases the limit on PHI tax relief in a year is 10% of income for that year. Payment of the PHI income benefit is subject to PAYE by the life company.
Maximum Benefit Payable
PHI policies usually restrict the maximum benefit payable in the event of a claim to a formula such as 75% of immediate pre-disability earnings, less the single person’s State Illness Benefit. Payment of the PHI benefit is also reduced by any other regular income the individual is entitled to while in receipt of the PHI benefit, such as employer sick pay and other PHI or disability insurance regular income. Restrictions on maximum PHI benefits are imposed because life companies want to make sure that people who make PHI claims always have a financial incentive to return to work.
The availability and cost of PHI cover is very sensitive to the nature of your occupation. Most PHI insurers band their PHI premium rates into different broad occupational groups, with the lowest risk occupations paying the lowest premiums and the higher risk occupations paying the highest premium rates. See some typical occupation classes below.
|Occupation Class||PHI Claim Risk Level||Claim Risk Level|
|1||Low||Accountant/Solicitor/Civil Servant Admin|
|2||Slight||Dentist/Lab Technician/Physio Therapist|
|3||Moderate||Nurse/Air Traffic Controller/School Teacher|