Money Talks: Do I need an insurance policy to protect me if I become sick?

Our reader is starting a new job where she will not be paid for sick leave. Does she need to purchase a policy that will protect her against the financial impact of illness?

Will insurance protect me financially when I am sick?

Thu, 10 Jun, 2021 - 13:25

Carol Brick

I am starting a new job and my employer does not offer any type of sick pay or illness cover. Do I need to take out some form of policy to protect me, should I find myself ill in the future?

The diagnosis of a serious or chronic illness can have a serious mental as well as physical impact on a person, but few of us stop to think of the financial impact it would have on us and our families. It is a very wise decision to be considering your coverage, and a lot of people do get the options mixed up. Let me clarify the difference between Serious Illness and Income Protection cover Serious Illness cover pays out a tax-free lump sum on the diagnosis of a range of specified illnesses.

The list of illnesses covered varies between insurers but it usually includes heart attacks, types of cancer, multiple sclerosis, kidney failure, motor neuron disease, brain tumours and severe burns. This lump sum can be spent however you like whether it is to maintain your standard of living (e.g. pay off a debt to reduce outgoings) or to help you cope during a difficult time. No tax relief applies to this type of cover.

Income protection cover is another very important cover and replaces up to 75% of your regular income in order to maintain the level of earnings on which you base your living. The list of illnesses covered here is much broader in that it will cover “any illness or injury” that prevents you from being able to work and also includes stress and back-related issues.

Payment of the benefit kicks in after a certain deferred period and continues all the way to age 65, if necessary or until you return to work.

You can take out income insurance if you are in full-time work or are self-employed and earn an income. It protects you only in these circumstances – it will not be paid if you become unemployed. Pre-existing, drug-related or pregnancy-related conditions are not covered by this policy.

Most people do not realise that payments to this type of plan are eligible for income tax relief at your marginal rate of tax which greatly reduces cost. If you claim on this plan, your benefit is treated as normal income and so is assessed for income tax, PRSI and the Universal Social Charge.

Some life companies also offer added benefits such as Zurich who offer a very popular specific type of cancer cover and Aviva who offer their Best Doctors Second Medical Opinion service which offers its protection customers a second opinion from a medical expert chosen from a well-renowned worldwide network of medical professionals.

Regarding the possible cost of these covers, it's impossible to generalise as it varies from person to person and depends on factors such as age, smoking status and medical history.

As I always advise, it is most important to seek advice on your protection requirements from an independent financial advisor who will take the time to identify your personal requirements.

According to some recent claim related statistics from one of Ireland's top providers, during your income-producing years, you are nearly twice as likely to become seriously ill as you are to die prematurely.

Taking the time to take on proper advice and putting a strong overall protection plan in place will serve to eliminate the stress of living with an illness or injury so that you can have the opportunity to focus on what really matters, which is a full recovery as soon as possible.