Income Protection Insurance NZ | Insurance Brokers | your income is your biggest asset

By: Brave Day  06-Dec-2011
Keywords: Insurance, Income Protection, Insurance Companies

People insure their house because they can see it and touch it. And yet not many
house insurance policies are claimed on. Houses just don't burn down that often.
People's earning potential, on the other hand, disappears all the time. Cancer,
heart attack and stroke are three of the key killers - not of people, but of their
ability to enjoy the life they want.

Steady stream of income

Income protection insurance gives you a steady stream of income if you're unable
to work for an extended period of time. And unlike ACC it covers non-accidental
reasons for being off work, such as stress, the biggest cause of people needing
time off work.

How much to cover?

Income protection doesn't cover your total income; instead there are two options:

  1. 55% of your income (agreed value) - your premiums are not tax-deductible
    and you won't have to pay tax on the benefits you receive at claim time.
  2. 75% of your income (indemnity) - premiums are tax-deductible and you
    will need to pay tax on the income you receive at claim time. 
    You can discuss the options with your adviser, and they can advise the
    best option for your specific circumstances.

Agreed value or indemnity?

The difference between agreed value and indemnity is the amount of certainty
at claim time.

To get an agreed value income protection policy, you need to prove your income
when you apply (usually an average income over 2 or 3 years - helpful if you're self-employed and your income fluctuates).

With an indemnity policy your income is proved at claim time.

At BRAVEday we're all about certainty at claim time. Where possible, we prefer to use agreed value policies. Your adviser will help you choose the policy that works best for you.

What stand down period should I choose?

Ask yourself - if I got sick tomorrow and needed six months off work, how quickly would I need money to start coming in?

The stand down period is the time you have to wait before you receive income protection insurance payments. There's usually a minimum one month stand down period.

Some insurance companies pay their income protection policies in advance. For example, if you have a one-month stand down and are off work for a month your policy will begin paying at the end of one month.  Others pay in arrears, so if you have a one-month stand down period and you're off work for a month, you won't receive payment until you've been off work for two months.

Your stand down period has a big effect on how much you pay in premiums. The shorter the stand down, the higher the premium.  Consider how much income you need as a minimum and whether or not there is more than one income coming into your household.

Your adviser can help you with these questions so that you choose the best stand down period for you.

How long do I need cover for?

Most income protection policies give you a choice of a fixed term of two or five years, or income protection through to age 65 or 70.

We strongly recommend you choose age 65 or 70 - this gives you the most choice at claim time.  What would happen if you selected a 5 year payment term, claimed at age 35, and could never work again? You'd have no income from age 40 to 65.

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Keywords: Heart Attack, Income Protection, Insurance, Insurance Companies

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