Can't Earn Money? Get Prepared
If you can’t work, your home loan, the kids’ education, and your retirement plan could all go out the window. Kris Ballantyne, of Partners Life, says income protection insurance can save you.
14 June 2022
We’re lucky to live in a country that has the Accident Compensation Corporation (ACC). It’s a no-fault scheme that’s one of a kind.
It provides compulsory insurance cover for personal injury for everyone in New Zealand, whether you’re a citizen, a resident, or a visitor.
ACC can cover the payments for your treatment and may even cover a portion of your income if you’re not able to work as a result of an accident.
But it stops there – it’s just for accidents.
But what about illnesses, long-term disability or health events that aren’t a result of an accident? What can help you then in your hour of need?
A health event could strike
Imagine this: you’re minding your own business and suddenly your heart gives out.
The doctors have said you need to take three months off work to recover.
You don’t have much in savings to cover your lost income and you’re wondering how on earth you’ll be able to afford to take the time off to recover without stressing about who will pay the bills.
You thought, since ACC helped to cover costs a few months ago for your broken ankle, that maybe they’ll help you now?
Sadly, a heart attack isn’t considered an accident, so ACC isn’t able to help you this time.
This is when a monthly disability product, like Income Protection, can step in and save the day.
Insurance pays the bills
Income Protection in its basic form can provide payments to help cover any financial commitments like household bills and mortgage or rent payments.
It’s designed to ensure the person with the insurance is protected against situations where they’d lose their ability to work or earn their income because of a partial or full disability.
Even better, the cover remains in place after you’ve recovered enough to return to work. This is to safeguard you against any recurrence or any new health events that may hinder your ability to work.
Unlike products like Life Cover or Trauma Cover, which pay a lump sum, Income Protection is a disability product, which is paid out monthly.
The sum is determined based on your own financials, and the type of Income Protection you bought.
Depending on your insurance provider, there are different types of cover to choose from, for example Agreed Value or Indemnity. Here’s what they are:
Agreed Value: This type of cover is agreed on when you apply and your financial circumstances are assessed, regardless of any pay changes you go through over time.
Indemnity: This type of cover allows you to select an amount to be insured for when you apply for the cover, however, your financial circumstances are assessed when you submit a claim for your Income Protection.
You don’t necessarily need to know which type of Income Protection cover you want, because you can discuss this with your financial adviser, so that you choose together the best option for you and your financial needs.
The reason why a product like Income Protection won’t cover 100 per cent of your income is because if the insurer did that, we wouldn’t be giving you any incentive to return to work.
But it doesn’t stop there.
There are other benefits
Did you know that Income Protection can sometimes have built-in benefits and additional options to help you even more?
Some of the options you can select with Income Protection allow you to protect yourself against any interruptions to your wealth.
These options aren’t limited to health events that directly affect you, for example, having a stroke.
But it can also include health events which don’t directly affect you, for example, your child or partner being injured in an accident, where you might need to take some time off to care for them fulltime.
There are limits to ACC
ACC truly is a great scheme to help spread the costs of all accidents across the community, but it’s also limited in how it can help.
No-one likes to think about struggling for money, so I’d suggest you invest in yourself and protect your income by talking to a financial adviser about how Income Protection could help you and your loved ones.
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