Question: I am a self-employed contractor and rely entirely on my income to cover my living expenses. My family has advised me to look into income protection, but I’m unsure if it’s worth the cost and I don’t know what options are open to me. How does income protection work,

particularly for someone in my position? If I decide to get a policy, what factors should I consider? And how does the claims process work if I were unable to work due to illness or injury?

Answer: Many people don’t consider protection like this until the worst happens – but it is something you should be thinking about. When you’re self-employed, your income depends entirely on your ability to work.

Unlike employees, you don’t have access to sick pay or employer-funded benefits if illness or injury prevents you from earning. This makes protecting your income a critical financial consideration. You might be surprised to find that different options are available when it comes to income protection, so it is important to look into the best option for you.

State supports available

As a self-employed contractor, your entitlements to State Illness Benefit are limited. While self-employed workers can now access Illness Benefit (€220 per week, subject to PRSI contributions), this is a fraction of most people’s actual earnings and is only payable for a maximum of two years.

What is income protection?: Income protection replaces up to 75% of your earnings if you’re unable to work due to illness or injury. Payments start after a deferred period – anywhere from four to 26 weeks, depending on your policy. The longer you can wait before payments kick in, the cheaper the premium. If you can’t return to work, payments continue until retirement age.

Relief on premiums – but tax on benefits: Premiums qualify for tax relief at your marginal rate, meaning a higher-rate taxpayer gets 40% back. If your premium is €100 per month, the real cost to you is just €60 after tax relief.

Income protection benefits are taxable, just like your normal income. The insurer pays you a gross amount, and you are responsible for paying income tax, USC, and PRSI on it.

However, not everyone qualifies for income protection. Here’s the catch: not all occupations can get income protection and for some, it’s too expensive. The cost of the protection is determined by the risk level of your occupation by the insurer. For example, if you work in an office, the costs are reasonable. But if you’re in farming, construction, or any hands-on trade, cover may be prohibitively expensive – or simply unavailable.

If your occupation falls into a high-risk category, don’t assume income protection is your only option

If it isn’t available or affordable, consider the following:

1. Specified illness cover: This provides a lump sum if you’re diagnosed with a serious illness like cancer, heart attack, or stroke. SIC is a good option to allow for major health shocks, but it won’t help with non-critical conditions like back problems or stress-related burnout.

2. Accident benefit: This pays a weekly amount if you’re injured and can’t work. It is limited to covering accidents but not illness.

3. Emergency savings: Having savings in place is always smart, but when considering being out of work due to accident or illness, how long could you realistically cover your bills if your income stopped?

Is it worth it?

You haven’t specified what industry you work in, but income protection is highly recommended for contractors in professional or office-based roles. It keeps the bills paid if illness or injury strikes.

However, if you are working in what falls into a high-risk category, income protection may simply be too costly. In that case, a mix of specified illness cover, accident benefit, and savings might be a more practical approach.

The key is knowing your options. Get advice, run the numbers, and make sure you have a plan in place – because the worst time to think about income protection is when you already need it.

Martin Glennon is head of financial planning at ifac, which is the professional services firm for farming, food and agri-businesses.