Advice matters
Understanding income protection: Safeguarding your biggest asset

You’ve probably insured your house, car and contents. But do you have cover for your biggest asset?

Each year, many New Zealanders are forced to stop work due to a health condition.

If you were in that situation, could you cope financially?

This is where income protection insurance is designed to help. If it’s something you think you might benefit from, here are a few things to consider.

What is income protection, anyway?

Income protection insurance policies are designed to help when you are not able to work for a period of time, due to a health condition.

While New Zealand has ACC for accidents, it does not pay if you are off work due to illness. The rules for income support through WINZ also mean that many people who have a working partner do not qualify for a sickness benefit.

Income protection, or rent and mortgage cover policies, can step in and assist.

They provide monthly claim payments which can use to pay your bills, continue to look after your family, and avoid falling behind financially. This peace-of-mind means you can focus on your health and recovery, not worrying about your bank account.

Why does it matter?

The ability to earn an income is many New Zealanders’ biggest asset. If you earn $50,000 a year, over a 40-year working life, you’ll earn about $2 million gross.

Points to consider

As with most types of insurance, one income protection policy is not necessarily the same as the next. Some key things to think about include:

Benefit term: Most people who are off work due to sickness are back in their jobs within a year or two. International research found people with breast cancer had an average six months off work, for example. You might be happy with an income protection policy that only pays out for two or five years – this is sometimes referred to as short-term cover. Or you might want the reassurance of knowing that you have cover that will pay until you’re 65 or even 70. We can look at what might be appropriate for you.

Wait period: How long could you wait for your insurer to start paying your claim? Generally, the longer you can self-fund a period off work, the lower your premiums could be. For most people, a 13-week wait period is an appropriate fit, but you could opt for something longer or shorter. Typically, insurers can offer anything from four weeks to 104 weeks.

Amount of cover: Most policies will let you determine how much you would like to be paid each month, up to a maximum of 75% of your gross normal income. We can help you determine what settings might suit. You do need to have current income, either from an employer or as a self-employed person, to apply for income protection cover.

Additional assistance: Some policies offer financial help to cover things such as paying a caregiver to help you at home for a period of time.

Retraining support: If you were left unable to do your current role but might be able to work in a different field, some policies will help with the costs of retraining.

Ability to work: Some policies allow you to work a small number of hours without it affecting your payments. There may also be the opportunity to receive partial payments if you’re working your way back up to full-time work.

We’re here to help

There are lots of features and options to consider, which is why our SHARE advisers are here to help you determine which options are most appropriate for your specific needs.

If it’s time to review, renew or take out income protection insurance, get in touch with a SHARE adviser near you.

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.