Income protection is a really important way of protecting yourself financially and ensuring that you would still have a regular income if you were out of work following an illness or injury.

With income protection insurance, you can insure up to 75% of your income and receive a monthly benefit if you are unable to work. This monthly benefit will continue to be paid until you can return to work, or until the end of the policy term if you remain unable to work meaning that you will still be able to pay your mortgage or rent, and your essential monthly bills.

Income premiums may seem expensive compared to other forms of insurance but, if you purchase a revenue approved income protection policy, then the premiums qualify for tax relief making them a lot more affordable.

Tax Incentives for Income Protection

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Tax advantages of income protection insurance

Income protection premiums are the monthly payment that you pay to your insurer to ensure that you remain protected by your income protection policy. 

Income protection premiums may qualify for tax relief at your highest rate. This means that if you pay income tax at 40%, then you can claim tax relief at 40%, significantly bringing down the monthly cost of this important form of financial protection.

Tax treatment of income protection premiums

Somewhat confusingly, income protection plans are called permanent health benefit or income continuation schemes by Revenue.

Revenue guidelines for tax relief on income protection (or permanent health insurance) is as follows:

  • If you pay your income protection payments, Revenue will adjust your standard rate cut off point and your tax credits (meaning that your premiums qualify for tax relief at your higher rate of income tax). You will need to apply for the tax relief yourself online through MyRevenue or through your annual tax return.
  • If your employer pays your income protection, the employer will deduct your income protection payments from your gross pay before calculating your Pay as you Earn (PAYE).

Tailored Income Protection Insurance Quotes

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Do all income protection plans qualify for tax relief?

To qualify for tax relief, the income protection insurance that you purchase must be Revenue approved. 

Most standard income protection schemes provided by the five main income protection insurers qualify for tax relief. These providers are:

irish life
Aviva - Home Insurance
Zurich - Home Insurance

If the payments you have made are for an unapproved scheme, you cannot apply for tax relief and premiums paid by your employer will be taxed as Benefit in Kind.

What if I have not claimed tax relief on premiums that I have paid for?

The tax relief is based on the premiums that you have paid in the year that you are claiming for. 

If you have paid premiums that you have forgotten to claim for, you may be able to go back up to four years and claim for previous years’ premiums through MyRevenue.

It is important to note that the tax relief that you receive is limited to 10% of your total income for the tax year.

Benefits of tax relief on income protection

Having tax relief on your income protection premiums has the following benefits:

Since the government is encouraging those who are in employment or self-employed to protect their income by offering a tax incentive, this makes your premiums more affordable. 

Looking at the following examples of income protection premium prices before and after tax relief shows how much you can save.

Income protection for a 35 year old, non-smoker, who wishes to insure 75% of their €54,000 annual salary until age 66 (with a deferred period of 26 weeks).

 

Aviva €52.32 per month €31.39 per month (after tax relief)
Royal London €52.32 per month €31.39 per month (after tax relief)
Zurich €64.25 per month €38.55 per month (after tax relief)

Knowing that you are financially protected if you are unable to work brings peace of mind. 

Having this security for a fixed amount every month (if you choose a guaranteed premium) until the end of the policy term means that you can plan and budget knowing that your plan is in place and avail of this helpful tax incentive.

Income protection insurance will cover you until the end of the policy term, as long as you maintain the monthly payments.

This means that you can save substantially over time by utilising the tax relief on your monthly premiums.

Executive income protection

Executive income protection works slightly differently from personal income protection. If you own a limited company, executive income protection will protect your income if you are ill or injured and are unable to work.

Executive income protection can also protect the income of company directors and key employees of the company.

Executive income protection, however, is taken out and paid for by the company rather than by the individual covered (like personal income protection). 

Premiums for executive income protection qualify as allowable business expenses and the company can claim corporation tax relief on them, provided the scheme is Revenue approved.

Are income protection payments taxed?

Yes, monthly benefits paid by your income protection policy when you are unable to work and in receipt of a claim are subject to income tax and USC. 

It is always advisable to speak to a financial advisor if you have questions about income, tax, or Universal Social Charge (USC).

Compare Insurance for Income Protection

Income protection will cover your most important regular expenses, such as mortgage or rent, day to day bills and other expenses if you are ill or injured and cannot work. 

Tax relief can reduce the premiums you pay for income protection by up to 40% making this essential form of financial protection even more affordable. 

At Compare Insurance, we work with Revenue approved income protection insurers and we can get you the best quotes for affordable income protection.

Call us or fill in our online assessment to see if you qualify for income protection today so that you can put an invaluable financial safety net in place while saving on income tax. 

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