Is it worth getting income protection insurance?
Many of us take our health and our ability to work for granted, especially when we’re young – but you never know what’s around the corner. Each year thousands of Kiwi families lose their main source of income after the primary breadwinner develops a long-term illness and becomes unable to work.
It’s important to have a plan in place to protect your family’s future from the unexpected – and that’s where income protection can step in. Keep reading to learn more about how income protection works and who should consider getting it.
What's income protection insurance and how does it work?
Also known as “income cover” and “income insurance”, this type of personal insurance provides regular monthly payments if you have to stop working due to a long-term illness or injury. These payments allow you and your family to focus on your recovery, giving you peace of mind that money will continue to come in each month to pay the bills and maintain your lifestyle.
The amount you receive each month will be based on your income, so you can be assured your monthly payments will keep pace with your lifestyle. With Chubb Life’s Assurance Extra Income Cover, you can receive up to 75% of your income, up to a maximum of $25,000 per month.
Who should think about getting income protection insurance?
If you’re like most Kiwis, your typical weekly spending will be higher than what’s available from Government benefits. According to Statistics NZ, New Zealanders’ average weekly spending per household was around $1,349 per week during the financial year ending 30 June 2019. To compare, in the same year, the Jobseeker Support Benefit was only $391.00 per week for a couple with children – and even less for singles and couples without children. An income protection policy can give you the security of knowing you can keep up with the bills and maintain your family’s lifestyle, if illness or injury prevented you from providing for your household.
Your ability to earn is an important financial asset. Not only does it allow you to pay for your lifestyle here and now, it also allows you to work towards your future financial goals, like paying off the mortgage and putting money into a retirement fund. Would you be able to get to where you wanted to be in 10 years from now if you had to rely on a Government benefit for five of those years?
Income protection insurance is suitable whether you work as an employee for someone else or if you’re self-employed and run your own business.
Whether you share responsibility for the bills with your partner, live alone, or are a working solo parent, if your household relies on your income to pay the household bills and living costs, you should consider if income protection is right for you.
What are the benefits of income protection insurance?
Income protection can offer a whole lot more than just regular payments if you’re off work due to illness or injury. Depending on your insurance provider, there are a range of other useful benefits to help you manage and recover from your illness or injury.
At Chubb Life, there are a few key benefits to help you through this stressful time:
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Total disability benefit
If you lose your income as a result of your disability, you could receive this monthly cash benefit to put towards your financial commitments and maintain your family’s current lifestyle. This could include things like rent or mortgage payments, groceries, power, education, or medical costs – it’s up to you.
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Bed confinement benefit
If you’re confined to bed because of your illness or injury, this benefit provides additional financial support during your waiting period, before you become eligible for your total disability benefit.
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Partial disability benefit
If you’ve been receiving the total disability benefit, you could receive a partial disability payment to support you transition back to working full time.
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Vocational training and rehabilitation benefit
This benefit covers the costs of vocational retraining or rehabilitation services that will help you return to employment or recover your physical ability sooner. Depending on your individual needs, this could include physiotherapy to help you recover from an injury, transitional job coaching to help you through the job hunting period or skills training so you can try something new in your career.
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Recovery support benefit
If you need to buy specialised equipment or devices to aid your recovery such as wheelchairs or home modifications, this benefit could help meet these costs.
You can read more about these benefits and many more in our income protection brochure.
What doesn't income protection cover?
Income protection can cover you for a range of different circumstances, but there are some things your policy won’t cover you for.
Each insurance company will have different terms and conditions, so it’s important to understand the exclusions that apply to your policy. At Chubb Life, our Assurance Extra Income Cover can’t cover you if your illness or injury is caused by:
- Intentional self-harm, including attempted suicide
- Taking part in criminal activity
- Pregnancy or complications resulting from pregnancy, unless the disability lasts more than 90 days after the pregnancy
- Not following the advice or treatment of, or under the regular care of, a medical practitioner.
Income protection insurance doesn’t typically cover redundancy, but some policies – like Chubb Life’s – will cover your insurance premium while you’re off work due to redundancy. This means you don’t need to worry about keeping up with your insurance premiums while you’re looking for a new job.
How much of your income can be covered?
The amount of income that can be covered will depend on a couple of factors; namely your insurance provider, and if you opt for a calculation at claim time or ahead of time, when you set up your policy. At Chubb Life, we can cover up to 75% of your income to provide monthly payments of up to $25,000 per month.
When you arrange your policy you can choose to have the value of your monthly payment calculated at claim time. If you do this, we’ll ask for evidence of your income over the past 12 months, and calculate the monthly average.
Alternatively, you could choose to receive an “Agreed Value” for your monthly payments, meaning you can decide ahead of time the exact dollar figure you’ll receive each month.
If you choose this option, the maximum you can receive each month depends on how much you earn at the time you apply for your policy – but if your income changes down the track, you can always call to discuss updating your cover level.
If you earn $70,000 or less, you can choose a cover level of up to 62.5% of your income, if you earn between $70,001 and $100,000 you can receive 60%, and if you earn more than $100,001 you can receive 55% – up to a maximum of $20,000 per month.
It’s important to let your insurance provider know if your income increases or decreases, or if you change industries. These changes could affect your premium or how much you receive at claim time.
When can you make a claim on your income protection insurance?
When you first arrange your policy, you’ll need to make a few decisions about how long you have to be off work before the payments will start, and how long the payments will continue for.
The waiting period is how long you have to wait before you’re eligible to claim on your policy after an illness or injury stops you from working. At Chubb Life, some people choose a waiting period of as little as four weeks, meaning they’ll need to be off work due to illness or injury for at least four weeks before they’re eligible to start receiving payments. Others might choose a waiting period for as long as 104 weeks. When making a decision, it’s important to consider how long you’d be able to rely on any sick leave or emergency savings.
You can also decide how long you’ll continue to receive monthly payments for, if your illness or injury prevents you from working long-term. At Chubb Life, you can choose a payment term of two or five years, or until age 65 or 70.
If you’re not sure which option is best for you, we encourage you speak to an Insurance Adviser, who’ll be able to make a personalised recommendation based on your circumstances.
What happens if I need to make a claim with Chubb Life?
If you think you might need to make a claim on your policy, the first thing to do is call our friendly team. or if you have an Adviser contact them. They’ll send you a claim form and answer any questions you may have.
Once the completed form is with us, our claims team will assess your claim and let you know if we need any more information from you or your doctor. Once we have all the information, we’ll be back in touch to confirm if you’re eligible to claim under your policy and let you know when the payments will start.
Do you need income cover if you already have life insurance?
Life insurance is designed to protect your family if you were to pass away – but it doesn’t typically pay out while you’re still alive, unless you have a terminal illness. This means it won’t offer any support to your family if you lose your income due to serious (but non-terminal) illnesses or injuries.
Income protection is it’s designed to cover you while you’re still alive, so if your family relies on your income, it’s important consider how your family would cope long term if you were to pass away. With Chubb Life’s Assurance Extra range of cover options, it’s easy to mix and match different types of insurance like income cover, life cover and trauma cover to make sure you protect all the things that matter to you.
Is income protection right for you?
If you and your family would struggle to pay the bills if you were off work due to a serious accident or illness, could you manage financially? If the answer is “no”, income protection could provide the peace of mind knowing that if the unexpected was to happen, your family could maintain their current lifestyle.
There are some circumstances where income protection may not be appropriate. As income protection is designed to replace lost income, you won’t be able to make a claim if you weren’t previously in paid employment. Whether it’s because you’re retired, a stay at home parent, or looking for a new job, an income protection policy may not suit your current life stage.
That doesn’t mean you can’t take out an insurance policy – it might just mean another type of insurance like life insurance, disability insurance, trauma cover may be more appropriate for your needs.
If you’re still not sure whether an income protection policy is right for you, it might be time to talk to a professional. Insurance can feel like a big decision, but Chubb Life's Insurance Advisers are here to make it simple for you, so there’s no guesswork involved. Getting the right insurance advice will give you the confidence that your insurance policy is tailored to you and what matters most to you.
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Getting the right level of insurance cover allows you to protect what you value most - lifestyle, family, health and more, no matter what. Learn more about income protection insurance and chat to an Insurance Adviser today.
