We can look to ACC to provide cover should we suffer an accident. But what most people fail to understand is that ACC doesn't actually cover you for illnesses such as cancer or a heart attack which would prevent you from working.
What would happen if you were unable to work? Who would pay your mortgage? How would you cover your day to day expenses? Does your family depend on you for their financial security?
If you are unsure of how to answer these questions then income protection cover could be a way to protect you and your loved ones.
An income protection policy provides a monthly income if you are unable to work due to sickness or injury. Whether this insurance is right for you will depend on your individual circumstances, but it might be worth looking at as not many families can go more than 8 weeks without an income.
There is a high chance for clients to claim on income protection insurance. At the time of the last census, 20% of New Zealanders said they were living with a disability and as many as 8,000 people a year will have a stroke[i].
Income protection policies can be quite complex and there are many things to take into consideration. Here are some things to think about:
- Choosing a benefit payment period. Most insurance companies offer several options on the amount of time you will receive payments if you ever claim on your policy. The usual choices are 2 years, 5 years, until age 65 or age 70.
- Choosing a wait period. This is the time you’ll have to wait before you start receiving payments. The most common options are 2, 4, 8 or 13 weeks. However there are longer waiting period offered by some companies. The longer your wait period the cheaper your premium will be.
- Indemnity vs. agreed value policies. On an indemnity policy, the benefit payment is calculated as a proportion of income at the time you make a claim. This is the most common type of income protection policy. An agreed value policy provides a fixed level of monthly cover which is agreed at the time the policy is set up. This option is particularly useful for self-employed people.
- Optional add-on benefits. Depending on the insurer you may be able to add other benefits like protecting your KiwiSaver savings, cover for specialists and tests and redundancy cover.
The options you choose on your income protection insurance will depend on your individual circumstances. It is important that you fully understand your policy and what you are covered for, so there are no unfortunate surprises if you ever need to make a claim.
[i] 2006 Disability Survey, Statistics New Zealand, 2006
The Stroke Foundation of New Zealand, 2010