INSURANCE

Income Insurance

Income insurance protects your most important asset, your income

Won’t ACC Cover Me?

In the event of an accident, you'll usually be covered by ACC. However, ACC only covers injuries from accidents, whereas income protection cover ensures you are protected in the event of illness and injury.

None of us want to think about suffering an illness or injury. But every week thousands of New Zealanders find themselves in that exact situation, and that's where income insurance comes in.

How would you pay the bills if you couldn’t work due to such an illness or injury? Income insurance protects your most valuable asset – your ability to earn – by guaranteeing you a regular income to cover your essential expenses. This offers you and your family peace of mind knowing you will have an ongoing monthly income to meet your personal expenses.

The good news is that income protection is available to all whether you're a wage earner, a salaried employee, or a self-employed individual.

Why Income Protection Insurance?

When prompted to think about insurance, we might immediately consider the insurance of an asset like our house or car. We fully understand the risks around a fire or natural disaster damaging or destroying our home, or an accident doing the same to our car. Despite our ability to recognise these risks, we might overlook the risks we face as an individual, especially the risks around what is most crucial to our overall wellbeing, our earning ability.

According to the most recent New Zealand research available, income insurance is probably the most underinsured area for our whole nation. In other words:

The most underinsured thing you possess is nearly always you.

For most people, being out of work for even a short period can have serious long-term negative consequences. The family home may need to be sold or refinanced, retirement plans are delayed, lifestyles downgraded, childcare, children’s schools changed, high-interest loans taken out to cover urgent bills, or even bankruptcy declared.

If these events occur, it can take years for things to get back to normal again. By taking out income protection insurance, you’re not only helping ensure you and your family will be okay until you’re earning again, you’re also maximising the chance of everything quickly going back to the way it used to be once you’re back in action.

Insurance For Loss of Income

If you’re unable to work due to illness or injury, income protection insurance will be triggered and you’ll receive regular payments to replace your income. This means you can focus on getting better rather than worrying about how you’re going to cover bills such as the mortgage, groceries, healthcare, childcare, school fees, or other commitments.

Income protection cover payments are usually paid monthly.

Self Employed Income Insurance

Income protection insurance policies are available for self-employed too. There are just a few more things to consider.

Most self-employed people don't have financial protection if they are ill and cannot work because they rely on their business's income to survive. Without an income protection policy, self-employed people could quickly face financial ruin if they could not work. The self-employed usually lack the financial safety net of employees, such as sick leave, as if they stop working, even for a day, their income stops.

Self-employed individuals are, in many cases, higher risk to insurers compared to full-time employed workers due to the industries they work in. For instance, construction tradespeople rather than being office-based. This increase in risk can mean an increase in price.

For the self-employed, calculations of the income insurance cover amount can also be more challenging, and need to be agreed upon with the insurer upfront before the policy is issued. This is because many self-employed individuals may run expenses through their own businesses, which minimises their taxable income. For example, a builder or farmer who drives a work vehicle on the weekends. This minimises the annual taxable income, but if historical income figures were used for income protection purposes that may be insufficient come claim time. This can be a tricky area to understand, so to learn more please book a complimentary initial consultation with one of our team, it'd be our pleasure to assist.

How Much Income Cover Will You Get?

Most commonly, upon successful acceptance of a claim you continue to receive up to 75 percent of your regular income even though you cannot work. You are only covered up to this percentage of your income because there should be an incentive for you to return to full-time employment when you have fully recovered.

How Long Is Income Protection Cover Paid For?

You can also choose policies that will pay a benefit for different periods including one year, two years, five years, or even until age 65 or 70, provided you’re still unable to work. Naturally, the longer the period, the higher the cost, and the shorter the period, the lesser the cost.

When Does Income Protection Insurance Pay After Work Ceases?

When you establish a policy, you choose how long you must wait before you receive a claim. The longer the wait period, the lower the premium (regular payment you make for the insurance cover).

Of course, the opposite is also true. The shorter the wait period, the higher the premium. Depending on the insurer, you can choose from 14, 30, 60, 90, 180, 365, or 728 days.

How Do You Make a Claim for Income Protection Cover?

The claim process may vary depending on your insurer, though the general steps are:

Check Policy Terms: Understand the terms and conditions of your income protection insurance policy. Familiarise yourself with the coverage details, waiting periods, and any specific requirements.
Notify Insurer: Contact your insurance provider promptly to inform them of the claim and confirm what they need to process the claim.
Provide Documentation: Gather the necessary documentation to support your claim. This may include medical records, proof of income by pay slips and tax records, and any other relevant documents outlined in your policy.
Complete Claim Form: Fill out the claim form accurately and thoroughly. Be sure to include all required information, as incomplete forms can delay the processing of your claim.
Submit Claim: Submit the completed claim form along with the supporting documents to the insurance company. Some insurers may allow online submissions, while others may require physical documentation.
Follow-up: Stay in touch with your insurance provider and promptly respond to any additional requests for information. This can help expedite the claims process.
Wait for Assessment: The insurer will assess your claim based on the provided documentation and policy terms.
Receive Decision: Once the assessment is complete, you will receive a decision regarding your claim. If accepted, you will be informed about the benefit amount and the payment schedule.

If you purchased your income insurance through a financial advice provider, such as us here at Become Wealth, the great news is the steps above will nearly all be handled by our team!

Income Protection Insurance Tax Deduction

Generally speaking, premiums for an income insurance policy paid directly by you are likely to be tax-deductible. This means you can claim back the taxes on your premiums paid at the end of each financial year. This not only ensures the safety net of coverage but also offers a financial advantage by providing what is effectively a discount on your premiums.

However, for extra peace of mind, it's wise to consult with an accountant or tax adviser before making any decisions. Our team is here to guide you through these intricacies, ensuring your financial well-being is in capable hands.

Other Benefits Available with Income Insurance

Depending on your situation, needs, and budget, a range of additional income insurance options are available with policies offered by various insurers. They include:

Return to work reward payments
Retraining benefits for approved training programmes, so you can gain new skills and return to the workforce
Rehabilitation payments which pay out an extra amount on top of your other income protection benefits, such as an additional 50 percent for every month you participate in a rehabilitation programme
Various childcare assistance benefits. This is intended to help with additional childcare costs that may be faced such as a live-in nanny or other care
Reimbursement for costs incurred as a result of emergency transport recommended by a doctor
Redundancy benefits - which is not covered by most income protection policies
Reduced or no waiting periods if you’re confined to bed for a set period
Options to continue KiwiSaver contributions while you’re unable to work so your retirement won’t suffer.

For those on a tight budget, more basic versions of income insurance are also available, including mortgage repayment insurance. This pays a reduced amount, but still offers a degree of assistance to ensure that if you fall seriously ill you won't lose your house.

How Much Income Protection Do You Need?

The right about of income protection insurance will be tailored to your needs.

The amount of cover will depend on factors including:

Level of Expenses

Break down your monthly living expenses, including mortgage or rent, utilities, and daily necessities. A robust assessment needs to take place to explore key factors related to this area of insurance, including your dependants, family situation, family medical history, medical history, assets and liabilities, expectations for cover, commitments identified in your budget, on so on.
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Our financial advisers can help you gauge the income protection required to maintain your current lifestyle in the face of unexpected challenges.

Align with Your Profession

Explore tailored income protection choices that consider the unique challenges of your industry. Whether you're in technology, construction, healthcare, or something else, you'll need a policy that reflects your professional and financial situation.

Emergency Funds and Beyond

Beyond immediate living expenses, we'll help you strategise for unforeseen circumstances. From medical emergencies to unexpected home repairs, our financial advisers can assist in crafting a comprehensive plan to ensure your income protection covers not only regular expenses but also further unexpected financial curveballs.

Policy Complexity

Some types of insurance are simple, such as life insurance. However income protection insurance is not! Establishing an income insurance policy entails considering a broad spectrum of options. Unfortunately, most people will find it challenging to understand the extensive terms, benefits, and features in lengthy documents filled with legal and health terminology provided by the insurance provider. Buried in this fine print are the crucial exclusions specified under each policy.

To get the right amount of cover, you'll need to fully understand all the fine print and choices, plus any exclusions, which is exactly what our financial advisers are here to assist with.

What if You Already Have Income Cover?

As is the case with other insurance policy types, the level of income cover a person needs can rapidly change depending on a wide variety of life events, especially changes to your income, career, line of work, and expenses. This, combined with the constantly improving nature of the insurance market, means that yearly reviews of your levels of existing insurance are a necessity.

Duplicate Income Insurance Policies

Our advisers see a wide variety of people right across the country. The most common income insurance issue they encounter is people with duplicate income insurance policies. Many people over-insure in this way by taking out two income insurance policies to try and cover 100 percent or more of their earnings.

The issue is that insurers will only allow you to receive a certain proportion of your pre-incapacity earnings while you are out of work. As mentioned earlier, insurers do not want you to be just as well off out of work as when you were in work, as this way there is always an incentive to get back into the workforce. Technically, you can take out multiple income insurance policies, so long as the total level of cover doesn’t cross the maximum level allowed by each insurer - which in New Zealand is nearly always 75 percent. For example:

If you have two income protection plans covering 75 percent of income and both insurers only allow you to cover a maximum of 75 percent of income, then only one plan would pay out, usually the first plan you established. The premiums you paid for the second plan have effectively been wasted.

On the other hand, if you had only insured 25 percent of your salary with one insurer and 50 percent with another (resulting in total cover of 75 percent of income) then there are no issues.

Note: This is not the same as people choosing multiple income protection policies to help them manage short and long-term financial loss of earnings. In this instance, a common strategy to reduce costs is to:

Establish cover in the first two years of disability with one policy that pays a reduced benefit (for example, 55 percent of income), then
Combine that with a policy that has a two-year waiting period that pays an increased rate (for example, 75 percent of the insured persons income up to age 65).

Should You Cancel Your Duplicate Income Protection Policy?

If you are considering cancelling any insurance policy, it is important to proceed with caution. It is usually a permanent decision that cannot be reversed. In the event that you cancel, you will need to undergo a thorough underwriting process again to reinstate your coverage.

It would be our pleasure to help work through anything explained here, so please contact us if you would like a review of your current policy or policies.

How Can an Insurance Adviser Assist?

Our financial advisers - commonly called insurance brokers - are standing by to assist with the topics explained above, and more. Here are some other advantages offered by exploring income insurance with an adviser from Become Wealth:

You have a guide through the process.
Most often, saves you money. This is because our advisers have excellent insurance market knowledge, so they know which policies should be avoided for being far costlier in the long run (such as those which charge a cheap initial rate then rapidly increase the premiums, or don’t cover what you need them too). Using industry-leading comparative tools, an adviser can connect you with the best policy to most economically meet your needs. Advisers also know plenty of helpful tips which keep the cost of income insurance down, such as tailoring the insurance to meet your needs, so you’re not paying for components of cover you’ll never use.
While we all hope never to need income insurance, if a claim needs to be made you will have support and assistance throughout. This includes helping you file the claim and provide supporting paperwork - which can be lengthy with this type of insurance, following up with the insurer on your behalf, and ensuring your needs are met. This reduces at least some stress at what will no doubt be a difficult time. Arguably, this is the most significant advantage of working with a financial adviser.

You can also gain confidence knowing that Become Wealth isn't an insurance provider and isn't owned by one (unlike some financial advice firms!). This reason sets us apart from some financial advice firms and gives you the confidence that your interests are always put first. Our advisers are paid a salary, not a commission, so they have no incentive to promote one product over another.

What Next to Protect Your Income?

With the protection of your most important asset at stake – your income, what have you got to lose by making a phone call to check your situation? For a complimentary, no obligation chat with a financial adviser about income insurance options for you or your spouse, call 0508 232 663 or leave your details below.

Thank you for reaching out! One of our colleagues will be in touch within one working day.

Talk soon!

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