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
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
reasons for being off work, such as stress, the biggest cause of
time off work.
How much to cover?
Income protection doesn't cover your total income; instead there
are two options:
- 55% of your income (agreed value) - your premiums are not
and you won't have to pay tax on the benefits you receive at claim
- 75% of your income (indemnity) - premiums are tax-deductible
will need to pay tax on the income you receive at claim
You can discuss the options with your adviser, and they can advise
best option for your specific circumstances.
Agreed value or indemnity?
The difference between agreed value and indemnity is the amount
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
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
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
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.