Kiwisaver Plan

13 Nov Why Income Protection is so Important – Jethro Hooker

Only half of all adult Kiwis have life insurance. They can imagine the catastrophe if the family breadwinner died.

Yet we face a much bigger risk financially than death. That is losing the breadwinner’s income through disability or illness. Kiwis are much more likely to be prevented from working through illness such as cancer, heart attack, or a stroke. 

Online research by insurer AIA last year found that 87 per cent of us have car insurance, 50 per cent life insurance and only 11 per cent income protection insurance.

Income protection insurance is quite simple. If you lose your income due to temporary or permanent disability through illness or accident you will be paid up to 75 per cent of your previous salary for the period of cover, which could be two years, five years, or until age 65. Related, but not as comprehensive, are mortgage protection insurance and total permanent disability (TPD) insurance.

People will often take life insurance cover and reject income protection insurance as “too expensive”, even though it is the more valuable cover. They underplay their chances of having an accident or falling ill.

These are the most common reasons why Kiwis dont take out Income Protection:

  • Don’t know what it costs
  • Get confused by analysing too many policies, or
  • Fear they won’t be covered for an illness they’ve suffered in the past
  • They think nothing will happen to them and if it did they probably wont get paid out anyway
  • They think ACC or the Govt will look after them

Most people would take out insurance to cover to cover their house contents or car worth anywhere from $2,000- $100,000 but don’t understand their ability to earn an income over their lifetime will produce upwards over a Million Dollars. Why would you not protect this?

There are two main ways to buy income protection insurance: through a bank, which will usually only sell its own policy, or an insurance broker (financial adviser), who will sift through a number of policies from insurance companies.

As a very broad-brush statement, the bank policies may be cheaper and often include redundancy cover for the mortgage, but can have more exclusions.

The advantage of an insurance company policy is that it will usually be more flexible, and providing clients disclose all relevant medical history, they will be covered for all conditions unless specifically excluded. Someone like Hutchinson, who has asthma, may have that condition excluded or the premium loaded to cover it, but he will know what he’s covered for in black and white. Or at least he will if he has read and understood the policy, which too few people do.

No Comments

Post A Comment