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What is Income Protection Insurance and how does it work?

Income Protection Insurance is a topic that’s come up a lot over the last few months and many clients have got in touch with us to ask about accessing their Income Protection insurance or getting insured for the first time.

In today’s blog, we cover the most frequently asked questions when it comes to protecting your income through insurance.

Firstly, what is Income Protection insurance?

Income Protection insurance literally insures your income against the risk of illness or injury that stops you working. If this does happen to you, your Income Protection insurance will insure you continue to receive monthly payments to cover your mortgage or rent and household bills.

Is it worth getting Income Protection insurance?

In short, yes. We think it is always worth getting Income Protection insurance. Like any insurance it gives you peace of mind. When you insure your car or home you are, of course, hoping that you won’t experience an accident or a fire that causes you to make a claim. But if it does happen, you have the peace of mind that you will be covered.

Income Protection insurance provides the same peace of mind. We all hope that an accident or injury will never happen to us but unfortunately it always happens to someone and protecting your income (which is your most valuable asset) can be a life saver.

What does Income Protection Insurance provide?

Of course, every provider is different so it’s important to talk to your insurance broker to get on a plan that’s right for you. But Income Protection insurance can offer:

  • Financial cover for your essential household expenses
  • Partial payments continue as you return to work to help ease you back into your previous way of earning.
  • Reimbursement for childcare costs
  • Assistance with rehabilitation or support costs

There is a huge raft of benefits in addition to these and this is something we can work through together to get you the best cover.

Are there different plans for Income Protection insurance?

Absolutely, there are a variety of plans that can be offered. AIA for example, offer these two different plans. One is Agreed Value Income Protection insurance which offers an agreed rate per month based on a proportion of your income. The other is Mortgage and Income Protection which pays either 45% of your gross income or up to 115% of your contractual repayments on your residential property’s mortgage. It would be up to you to decide which option suited you best.

How is the amount of cover I receive calculated?

Again, it will depend on your provider, but there are generally two different ways of calculating your cover.

1: Agreed Value Cover: This means you are paid based on a proportion of your payments agreed at the time you take out the cover. This is ideal if you want absolute certainty about how much you will receive.

2. Indemnity Cover: This means you are paid based on a proportion of your income at claim time (immediately before you suffered the injury or illness)

Will Income Protection Insurance cover me if I lose my job due to redundancy or a situation like a pandemic?

Income Protection Insurance is primarily for loss of income through injury or illness however there are often optional extras that be can added to your policy including redundancy cover. Again, this will depend on your provider but we can help you work through the options.

Interested in exploring Income Protection Insurance? Email us on reagan@nzadvicegroup.co.nz or give us a call on 0800 230 235