Income Protection Insurance

Income Protection enables you to continue supporting yourself and your family if you can't work because of illness or injury. With Income Protection you receive a monthly benefit to help replace lost income.

In New Zealand, if you are incapacitated through accident, you are protected by ACC. The Accident Compensation scheme generally covers you for treatment of personal injury but ACC expressly does not provide cover against illness.

Income Protection is designed to provide valuable protection for illness and accident-related disabilities (although any income received from ACC will be offset)

Over two thirds of disabilities are caused by illness - and consequently no ACC benefit is payable (source: AIA source Davis Financial and Actuarial 2005).

Income Protection is designed to fill this gap.

One in seven males (15-65) had a disability that will keep them off work for 6 months or more.       (Statistics NZ, 2006 Disability report)

One in eight adult females (15-65) had a disability that has kept them off work for 6 months or more.   (Statistics NZ, 2006 Disability report)

The most likely cause for five out of six people is illness and medical conditions.    (ACC Berl. report, June 2010)

If a severe sickness or injury prevented you from working for weeks, months, or several years, how would the loss of this income impact on your household?

The main purpose of Income Protection is to protect long-term loss of income due to disability (for example disability due to a stroke, or from being paralysed).

Income Protection is not designed to cover short-term periods of up to one month off work due, for example, to the flu.
 

Most people believe that their biggest asset is their house. In reality your biggest asset is YOU – because of your ability to earn.

Take a 35 year old with annual earnings of $60,000 per annum. This person has the potential to earn in excess of $1.8million (without allowing for any pay increases) by the age of 65.

Imagine if that ability to earn was taken away from you, because of an illness or accident related disability. Income Protection is designed to minimise the financial impact on your household
 

Income Protection Claims

The pie chart below illustrates the main causes of income protection claims by number of claims      (Source: Sovereign – as at 31st March 2006).

 

Types of Income Protection

There are commonly four different types of Income Protection:-

The ‘type’ of Income Protection that is right for you depends on your individual circumstances and situation, and the tax treatment depends on which type of Income Protection policy you have.

The maximum you can insure for is 75% of your Gross income. No Income Protection policy will insure you for 100% of your income