In basic terms, income protection insurance in New Zealand replaces a percentage of your income when you cannot work in your own occupation for a medical or injury reason.
It is designed to provide 75-80% of your in the hand earnings to you when disabled at claim time.
Most policies today have a range of options and different flavours. Fundamentally there are two types, those you pay tax on at claim time and those you do not.
The rules and approach around each one are a bit different which is where we come in as specialist advisers on protecting your income.
What are the types?
in simple terms, there are three flavours of income protection.
- Agreed Value in which you prove the level of cover at application time to have more security at claim time that you will get paid.
- Indemnity Value where you prove your loss of earnings at claim time, and it pays or replaces, your income up to a certain level. Which runs the risk of not being able to if your employment and earnings situation has changed.
- Loss of Earnings where you prove your loss of earnings at claim time, and it pays a percentage of your lost earnings. Like indemnity this option has risks at claim time though is usually a stronger option than the indemnity approach.
What about ACC?
Yes, we also have ACC, something quite unique to New Zealand. ACC replaces up to 80% of your personal taxable earnings if you are disabled in an accident and are unable to work in any occupation.
You do need to keep in mind, 75% of white collar occupation disabilities and 50% of blue collar occupations do not involve ACC disability or weekly compensation claims. So the prevailing idea ACC has you covered is not as secure as you might like.
If you are self-employed there are a couple of catches with ACC claims. Income split with your spouse isn't included in the 80% claim calculation. Also, because ACC pays your personal earnings, if you have business expenses that don't stop when you do, you will have a shortfall as ACC will not pay these either.
As an employee, you need to keep in mind ACC may require you to return to another occupation if you cannot return to your own occupation. This is subject to existing knowledge, experience or further training. With income protection this is a choice you can make to return to work in a different occupation, it can't be forced upon you like ACC can.
In a disability situation where you have ongoing income or ACC payments, Income Protection policies can and do take this into account when your claim payment is made.
Mortgage Protection Insurance
Mortgage Protection is very similar to Agreed Value Income Protection, with some providers it is the same with one key exception if you have a mortgage, and a claim is paid, there are no offsets.
Can I have more of this than my Mortgage Payment?
With most providers yes, up to 100% or your required monthly mortgage payment can be insured.
- If 55% to 75% of your income is less than your mortgage payment, you will be already able to get more with this approach than standard income protection.
- If 55% to 75% of your income is more than your mortgage payment, we can insure the difference on an income protection policy.
So I could end up with two policies?
Yes, this is possible, though with most insurance companies it is two benefits on the one policy and they work together.
We would counsel against having your income protection with more than one company as it can cause issues at claim time.
Ok so I’ve had a look around, and I have all of these quotes that don’t make sense to me:
This is something we often come across as different insurers use different language and advisers will give you various options. We can help you understand the different options and how they would affect your cover as well as provide you the research to assist with making the best decision for your cover.
With all standard income protection policies, none of them covers job redundancy, only disability caused by an accident or illness.
Redundancy Protection can be added, at an additional cost, and is subject to additional considerations.
Looking for other resources on income protection?
- Our more extensive page on Income Protection
- Check out our blog section on income and mortgage protection
- as well as our blog section on risk management
Where to from here?
If any of this has raised questions about the cover you have or the need for cover, please Contact Us.
We would welcome the opportunity to clarify things for you so you have confidence the cover you have will do what you want it to.