Explaining Income Protection And Long-Term Renting

Whether you think rent is dead money, or a mortgage is lodestone around your neck, the chances are you’ll spend a long time renting. A recent article in the Independent says renters are incredibly vulnerable, post-banking crash. Can Income Protection help?

If you spend a lot of time on Daft.ie as a renter, one of the best ways to torture yourself is by making comparisons between the cost of your rent, and an equivalent mortgage. It’s a depressing calculation.

Renting Vs Owning

A mortgage holder has the option of serious illness insurance, and mortgage protection insurance, in case of serious illness and death. A renter may have no safety net in the result of a life-changing event.

The age profile and demographic of renters has changed considerably over the past decade. The media may portray long-term renters as young, but many of us are renting with families and responsibilities.

Recent reports show that some of us are paying up to 60% of our income on rent. Anything that affects our ability to work and fund that rental could be catastrophic.

Income Protection & Its Uses

Income Protection is a key strategy to ensure a long-term illness doesn’t derail your family, and future return to work.

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Income Protection is also known as Permanent Health Insurance. It’s a policy that pays out a benefit if you’re unable to work due to an illness or disability, and you don’t have a second job.

Your benefit starts paying out after the ‘deferred period.’ You select this period at the time you apply for your policy, so it’s typically 4, 13, 26 or 52 weeks. The shorter the period, the higher your premium will be.

For example, if your deferred period is 13 weeks, you must be unable to work for 13 weeks before the income protection payments begin. To decide your deferred period, check if your employer offers sick pay, and if so, how much and for how long.

How To Decide On Income Protection?

Is Income Protection the right choice for you? Well, if you:

  • Are self-employed;
  • Won’t receive sick pay from your employer;
  • Don’t have ill-health pension protection;
  • Have dependents who rely on your income;
  • Have no other source of income;
  • Don’t have sufficient benefits to replace your lost income or cover your expenses,

then yes, I think it’s worth looking at.

Before You Apply…

Some employers will offer access to a group Income Protection scheme, but you can take out an individual policy. The cost of your policy will mainly depend on the level of your cover (percentage of income), the deferred period you choose, and the term of your policy.

Aside from the usual factors of age, health, medical history and lifestyle, your job will also affect your premium. Different types of employment are defined as classes between 1 and 5, as some jobs are riskier than others.

For an example, Sinead and Simon are both renting for €2,500 per a month. Like many people, they’re spending over 30% of their income on rent.

Illness Lasting Less Then 6 Weeks

Income Per YearSineadSimonTotals
Full Time Job€36,000  
Full Time Job €30,000 
Total Income  €66,000
Annual Cost Of Rent  €30,000
Cash Remaining
(€3,000 per month)

Sinead earns €36,000 p/a, and Simon earns €30,000 p/a. If Sinead was to become ill and unable to work, she would receive 6 weeks of illness benefit from her employer, and the state illness benefit of €198 per week. (This is deducted from her illness benefit from her employer).

Illness Lasting Longer Then 6 Weeks

After the 6 weeks, Sinead’s employers illness payments would cease. This would leave Sinead and Simon’s annual combined income of €40,296.

Income Per YearSineadSimonTotals
State Illness Benefit
(€198 x 52 Weeks)
Full Time Job €30,000 
Total Income  €40,296
Annual Cost Of Rent  €30,000
Cash (€858 per month)  €10,296

Their rent per year is €30,000, leaving €10,296 for all other bills throughout the year. That’s a scary €858 to live on per month.

Neither Sinead, nor Simon, have family in the county, so moving in with their parents will prevent Simon from working, and Sinead from taking up her job again after her illness.

With Illness Protection In Place

If Sinead has an Income Protection policy, she can insure up to 75% of her earnings.

She pays PRSI, so she is eligible for State Illness Benefit of €10,296. If she insures an income of €20,000 for 20 years, after a deferred period of 8 weeks, Sinead and Simon will have a combined income of €60,296 p/a.

This will leave them with a monthly income of €2,524, a jump of €1,666.

And the cost to Sinead per month for this policy can be as little as €41.27 per month, if she is accepted on standard rates.

Income protection for renters is a sensible choice. Especially if you have no other accommodation alternatives like been able to move in with family.

Everyone should explore the expense & benefits of insuring the cost we all pay each month for our homes. This applies equally whether you’re a renter or a home owner.

Contact us today to find out how Income Protection can protect your rental home.

Greenway Financial Advisors Limited is regulated by the Central Bank of Ireland. Registered No. C168372

Debbie Cheevers

Debbie Cheevers

Qualified Financial Advisor

Debbie was born in Dublin and graduated from NCAD with a degree in Visual Communication. She brings a strong customer services background to Greenway.

Debbie qualified as APA in 2017 and a fully qualified financial advisor (QFA) in 2018.

She believes that product knowledge is key to helping customers make the right choices.