Income protection insurance is a type of insurance that provides individuals with continuity of income should they suffer a long-term illness, disability or other loss of income that is not covered by ACC.
2. I thought if I was off work I was covered by ACC?
ACC automatically covers 80 percent of your income in the event of an accident that prevents you from working. It does not provide alternative income for you or your family in the event of a sickness, trauma or certain kinds of disability such as a stroke. Of course, you are only covered if you are currently earning an income.
3. What exactly is the problem with not having income protection insurance?
The Government’s universal sickness benefit entitlement is around $343 a week. However entitlement to this benefit is affected by your partner’s earnings and is only available if your other household income is below a certain figure. This means that many families find themselves too well off as a household to qualify for a sickness benefit, but too poor to pay the mortgage and food bills.
4. Why don’t people buy income protection insurance?
Many people resist contemplating an eventuality such as the inability to work for three to six months or more. Unfortunately such a situation is statistically much more likely than a sudden death. While most New Zealanders prepare for the latter by taking out life insurance most fail to insure themselves and their families against a much more common financial hardships – sickness or disability.
5. Why is income protection insurance so “expensive”?
The major driver of the cost of income protection is the likelihood of a claim and its expected duration. Statistics show New Zealanders are 2.6 times more likely to lose income from being off work for six months or more as a result of sickness than of losing the same amount of work time as a result of an accident. The period you have off work after sickness is typically much longer than for an accident.