Could you afford to take time off work? Many people have periods in their lives when they are not able to earn their usual income, due to illness or injury.

Having a financial safety net in place can make the difference between whether this is a minor hiccup or a significant setback. Here are a few things you could consider.

What sort of insurance might help?

Insurance can be a big help if you are unable to work for a period of time, and there are a few key types of cover that might cushion the financial impact.

Income protection

Income protection cover will offer you an ongoing, regular payment to help cover your costs if you are unable to work due to illness or injury. After a standdown period, payments are made for a set number of years; generally, the options are for two or five years, or until the age of 65 or 70. Payments cease when you return to work, no matter what benefit period you have.  

With income protection insurance, you typically have two options: agreed value or indemnity cover. With agreed value, you and the insurer determine a fixed benefit amount at the start of the insurance. In contrast, the indemnity cover provides a benefit based on your gross earnings at the time you make a claim. Both indemnity and agreed value income protection cover can generally replace up to a maximum of 75% of your gross earnings.

Mortgage protection

Mortgage protection cover is a little bit more targeted and is designed to cover your mortgage payments or rent – many households’ biggest expense. This is usually set at a percentage of your gross income or in relation to your actual rent or mortgage payments – usually up to 45% of your pre-tax income, or 115% of your mortgage or rent.

Trauma cover

Trauma policies may also be useful if you suffer a specified health event that puts you off work. Trauma pays out if you suffer one of a set number of conditions named in the insurance policy – usually things like serious heart attacks, cancers or loss of a limb. This is paid in a lump sum and can be used for your treatment or the cost of your care, but it can also help with covering daily expenses or debt if you’re not able to work for a while.

You could combine insurance for broader protection

It might make sense to have more than one kind of cover in place. Income protection cover, for example, is usually offset by ACC but mortgage protection cover is not. You might have these working together for broader cover.

Having trauma cover as well as income or mortgage protection could mean that you have a lump sum to help with major expenses or to clear debt, and then ongoing income support from the other policies or ACC.

Your SHARE adviser can help you to work out how your insurance policies fit together and what you might expect if you were to claim.

Emergency funds matter, too

As well as appropriate insurance cover, it’s helpful to have an emergency fund to cover periods where your income drops.

The general rule of thumb for an emergency fund is the equivalent of three to six months’ income saved to help you get through surprise financial setbacks, such as an unexpected bill or time off work.

Even if you will be able to claim on your income protection or mortgage insurance, there will be a wait time before the policy starts to pay out. Having an emergency fund means you could cover a longer wait time before the claim is paid, which could make your premium more cost effective.

What about ACC?

You might be wondering how ACC fits into the picture. If you’re off work due to an accident, you may receive an ACC payout of up to 80 percent of your usual gross income. But it won’t pay in cases where you are not working because you’re unwell. Your SHARE adviser can talk to you about how ACC fits into your protection picture.

Benefits from the Government can also be hard to access if you have a partner who is in work.

We are here to help

The SHARE team is here to answer any questions you have. We can help you look at the policies you have in place and assess whether you are sufficiently protected from the possibility of unexpected time off work, and whether any other cover might be helpful.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.