Having an income protection insurance policy is really important if you are the main income earner in your household or would struggle to meet your monthly financial commitments in the event that you were unable to work for an extended period of time.
It provides invaluable protection from loss of income due to either an injury or illness that you may suffer and whereby you are unable to work in your normal day-to-day job.
Why you need income insurance
Unfortunately, most New Zealand households don’t have income protection, which creates undue risk for families to be able to pay their mortgage, buy essential items and maintain their current standard of living if the main breadwinner in the family is disabled through sickness or disability.
Many people assume that ACC will provide cover in the event that they are unable to work for reasons previously stated however this is not the case. ACC only covers you if you have an accident and will pay 80% of your income for an agreed period of time. It does not include cover if you get sick or become disabled through an injury you incur.
It’s important to consider that most people who require extended time off work is usually because they have suffered an illness or disability rather than having a home or workplace accident. This poses serious financial risk for the majority of the workforce if they don’t have some form of income protection to help see them through until they can return to their paid job. It also places immense stress and financial strain on family members if the main income provider is unable to pay household bills.
What does income insurance cover?
Some insurers include income insurance under their life insurance products and provide different options depending on what cover you require for your age and personal circumstances.
For example, they may include cover for rehabilitation costs to assist you in recovering from an injury or the hiring/purchase of specialised home equipment if you are completely disabled from your illness and cannot return to your normal job. They may also provide back to work benefits if you are able to return to your normal occupation within a certain timeframe, for example 12 or 24 months.
You can choose whether you would prefer to receive a lump sum payment to cover your financial commitments whilst you recover from your injury or illness, or alternatively receive monthly payments for the agreed period of time that your policy states. Generally insurers offer a benefit period of either 2 or 5 years or until you reach the retirement age of 65.
It’s important to note that there is a stand down period from when you take out your policy and when you can start claiming income benefits. You can choose how long that waiting period is, in addition to the maximum length of time that the benefit will remain in effect. These terms will be included in your policy wording and be reflected in how your monthly premiums are calculated.
Your income insurance premiums are usually tax deductible provided the benefits you receive on a monthly basis are regarded as taxable by IRD. This can potentially provide significant cost reductions of your monthly premiums for the duration of your policy.
How a NZbrokers Member can help
As each insurer will have its own policy options, it’s a good idea to talk to your local NZbrokers member to find what the right income protection policy is for you. They have in-depth knowledge of a wide range of insurance products and will take the time to get to know you to understand your risk factors and personal requirements.
They can also talk you through what deductions may occur in the event that you are already receiving financial assistance from ACC or other insurance policies that you hold, for example mortgage protection insurance or life insurance.
Similarly, they can explain how much you will receive from your benefit based on a range of factors, for example, what your previous income was prior to your illness or injury and what percentage of your salary your policy will pay out.
Contact an NZbrokers member to discuss your income protection insurance requirements and how they can help.