As an Accountant, you likely spend most of your day crunching numbers. Financial forecasting and risk analysis are standard.
It’s your job to ensure potential issues do not arise.
Yet sometimes we can be so busy looking after everyone else’s finances we take the eye off our own.
We all like to think we’ll live a long life free from worrying about illness or injury.
Unfortunately, this isn’t the reality for most.
Failing to put a financial safety net in place could be one of the biggest mistakes you make.
Our ability to earn an income is often our most valuable asset.
Your income pays for your mortgage. It pays for your pension contributions. It pays for the holidays and groceries each week.
Money isn’t everything, but financial stability is important.
Our job at emero Insurance is to assist you in becoming financially resilient. Should the worst arise, there’s a failsafe in place.
Our role as Partner of Chartered Accountants Ireland means we have many clients who are accountants and are often the go-to in this industry.
I decided to put together this guide to provide clarity and highlight the importance of protecting your salary.
No hard sell. No fluffy language.
Just jargon-free information on points I feel are important.
Most of us understand the value of our earned income yet some people fail to protect it.
What is Income Protection for Accountants
Income Protection Insurance or Salary Protection as its also known is an insurance policy that allows you to safeguard a percentage of your salary.
Benefits are payable should you be unable to work due to any illness, injury, or disability.
The maximum you can cover is 75% of your annual gross salary minus the State Illness Benefit.
Should you become unable to work, this benefit will be paid to you directly on a monthly basis.
If you’re self-employed or a company director, premiums can be paid by the company.
If you’re a PAYE worker, you’ll be eligible to claim tax relief on all premiums at your marginal rate.
Why do Accountants need Income Protection?
Regardless of occupation, ensuring you’re financially resilient should be a priority.
Although we like to think we’re bulletproof, it’s not the reality. Life often surprises us when we least expect it, from a cancer scare to an accident.
Statistics from a recent Aviva study highlight the importance of having a safety net in place.
Studies show that a 40-year-old male has a 46% chance of being unable to work for one month or more before reaching retirement age.
The female percentage is slightly lower but still a huge risk.
So, before you think “it won’t happen to me” it might be worth taking stock and looking at the facts.
A simple decision now could be one of your future self-thanks you for.
Putting some cover in place could possibly prevent future worry and financial woes.
What’s the value of Income Protection?
An Income Protection claim will continue to pay your benefits until you can either return to work or retire. Whichever comes first.
This means claims are often ongoing for a significant period of time. Aviva’s statistics show the average claim is five years.
However, often claims go on for much longer.
For example, if you’re 40 years old and earning €100,000 per annum. You decide to protect 75% of your salary equating to €75,000.
You choose a retirement age of 65 and become unable to work until this point.
That means you’ll be paid €75,000 over 25 years resulting in a total payment of €1,875,000.
We’ll look at premiums below, but for those in a Class 1 occupation, taking this cover out should be an easy decision.
How much does Income Protection cost for Accountants?
Your profession as an accountant is classified as Class 1, which is the lowest risk category.
This means your premiums will be significantly cheaper than those in other occupations.
Below we compare putting cover in place as an Accountant versus other occupations.
(All above quotes are for a 35-year-old male, non-smoker covering €50,000 per annum with a 26-week deferred period running until age 65)
As a member of Chartered Accountants Ireland, you’ll also be eligible to a further discount. Please contact our team and quote your membership number to avail of your discount.
Can you expense the premiums through the company?
Yes. If you are self-employed or a company director, premiums can be paid by the company and treated as a business expense.
If you are self-employed, you are particularly vulnerable as you’ll be unlikely to qualify for State support should you be unable to work.
We have a guide dedicated to why having Income Protection while self-employed is so important.
I’d recommend you take a couple of minutes to read it.
Can tax relief be claimed on premiums?
As an Accountant, you’ll be acutely aware of taxation and likely spend a lot of your time assisting clients in reducing their tax liability.
If you pay your Income Protection personally rather than through a company, you can claim tax relief at your marginal rate.
Should you pay tax at the higher rate of 40%, you’ll be eligible for 40% relief on your premiums.
Tax Relief (40%)
The tax relief can be applied via payroll by notifying Revenue of the fact you have started such a policy and supplying them with the details of the contributions.
How do I claim if I become unable to work?
Income Protection and Life Insurance are different from other types of general insurance policies. The payout rate is in excess of 90%.
If you become unable to work due to illness or injury and want to start the claims process, you can expect it to look like the following:
- Contact your broker or the insurance company who you took the policy out with.
- Complete the Claim Form you’re sent and return it to the relevant department.
- Liaise with your broker as they’ll have experience with the process.
- The claim will be assessed once received and you’ll likely be sent for an ‘independent’ medical with a specialist.
- The specialist will then submit their report to the insurer.
- Once your claim has been accepted, you’ll receive the amount you’ve been insured for (after the deferred period has lapsed). For example, €850 per week.
- You’ll register with the insurer as an ‘employee’ while benefits are paid.
- Your claim will continue to be paid until either of the below happens:
- You are fit to return to work.
- You reach the retirement age outlined in your policy.
- You die.
As you can see from the above, the claims process is fairly straightforward.
Are there alternatives to Income Protection that you should consider?
There are no direct alternatives to Income Protection. It’s the only policy that will provide you with a continuous, long-term payment should you be unable to work due to illness or injury.
In some cases, a Specified Serious Illness Cover may be something you consider.
Although it’s worth noting they are very different policies.
Specified Serious Illness Cover will pay you a tax-free lump sum on the diagnosis of an illness outlined in your policy.
This payment will be a once-off lump sum. If you’d like to compare the difference between Income Protection and Specified Illness Cover, then I’d recommend reading our guide.
I’ll also leave a quick snapshot below which may be helpful.
Income Protection vs Specified Illness | Quick Summary
- Income Protection will provide you with a long-term, monthly income payment.
- Specified Serious Illness Cover pays out a once-off, tax-free lump sum.
- Income Protection will pay out once you are unable to work due to any illness, sickness or disability.
- Specified Serious Illness Cover pays out only on the diagnosis of an illness outlined in your policy.
- Comparing both using factors such as price should be avoided. You should seek advice to ensure you choose the correct cover for your specific needs.
What should you do next?
The million-dollar question… Although the answer is fairly simple.
If you have no salary protection cover in place, speak to an advisor.
If you’re an employee, check with your employer to see if any cover is in place.
If you’re self-employed, you should act quickly. You’re taking a huge gamble not protecting your ability to earn an income.
If you’re a member of Chartered Accounts Ireland, you’ll be eligible for exclusive discounts through our partnership.
I’ve also left my calendar below if you’d like to book a quick chat. I leave a limited amount of space each week for a short consultation call.
You’ll be under no obligation to proceed but it’ll allow you to ask any questions and assess potential options.
Look forward to hearing from you!
Email: [email protected]
Phone: 01 5844280
Ian’s calendar: https://calendly.com/ian-emero