I have to say that I disagree with your statement that "The loopholes in most income protection insurance policies are vast, they rarely pay out anyway". There are really only 3 companies in Ireland that offer income protection plans on a stand alone basis - without a personal pension etc attached. The provider of the best plan is Friends First. I believe that over 90% of their claims are successfully paid out, which is considerably higher than alot of other types of insurance.
You are largely correct in saying that they will not pay out if you have an existing condition, but that seems fair enough to me. When assessing your application, if there is evidence of an illness already existing that would ordinarily warrant a claim, why would they cover it? They are afterall, a business. They will however cover every other possible eventuality, just an exclusion on the existing illness. This exclusion is declared to the applicant in full and in writing before they start the plan. If someone has a history of being out of work due to back problems, that is all they will not cover. The person will still be covered if something else happens to them.
My understanding of it all may be naively simple... If you are self employed, you are not eligible for any State benefit. Thats not great, but that the way it is and it is our choice to become self employed. If you are an employee of a company, and assuming your PRSI payments are up to date etc, you are eligible for disability benefit of at least €9,622 per annum as an individual. Even this isn't great, but it's something. If your employer does not provide for any short, medium or long term sick pay (which they are not obliged to do), whether you are your own employer or an employee, then you should strongly consider an income protection plan as an alternative. Your only other options are to a) hope that nothing happens to you, b) live off your savings (!), c) live off your family & friends or d) find yourself in alot of trouble financially.
I do have a vested interest in this subject as one of my own websites is
www.incomeprotection.ie, however I am also bound to give good, honest advice to clients based on fact, not sales. I have to justify every recommendation that I make to a client. There are plenty of publicly available, success stories available for people claiming a long term income from an income protection policy.
It can be quite easy to justify most types of insurance as sensible and useful, but yu have to draw the line somewhere and I, personally / IMHO etc, believe that once you have covered your debts with life cover, the next best step is to cover your income, which is afterall your biggest asset.
Sorry... rant over!
PS. Key man insurance is genrally just a life assurance policy that a company will take out on the life of an important employee, so if they die, the company will have the resources to recruit someone of an equal calibre to take their place. It would also serve to cover the company against any potential loss of business if that employee had a particularly good relationship with a client that gave them alot of business.