If you think about it, your income is the foundation of your financial life: both your future goals and immediate needs depend on it. So, what would happen if you suddenly lost the ability to work and earn a living? How long would your emergency funds last for? And how would your family cope? 

These are all key questions, as any insurance adviser would tell you. That’s because your income is worth protecting. And as its name aptly suggests, income protection insurance is designed to help you do just that. Here’s how.

It replaces part of your income if you can’t work

Income protection insurance is designed to provide a replacement income if you’re unable to work for an extended period of time, due to an illness or injury. It’s important to note that it’s only paid if you’re unable to work.

When you apply for cover, you can choose:

·        Your payment amount: This is the percentage of gross pre-disability income you’d like to replace, usually up to 75%.

·        Your wait period: This is the amount of time you’ll have to wait from the day you file your claim, to when your insurer starts paying you. It usually ranges between one month and 13 weeks. Of course, the bigger your emergency funds, the longer you can probably afford to wait. And the longer the wait period, the lower your premiums will likely be.

·        Your payment period: This is how long you’d like to be paid for: usually two years, five years, or up to retirement age. The longer the payment period you select, the higher the premiums are likely to be – again, something to consider when budgeting and planning for the future.

Not sure what’s appropriate for you? An insurance adviser can help you get the structure right and ensure you understand how it all works.

But you already have ACC… Why consider income protection?

It’s a great question, and yes, there’s no denying that we’re lucky to have ACC here in New Zealand. The scheme literally covers everyone in the country for accidental injuries, footing the bill for medical expenses and, in some cases, replacing up to 80% of your income if you are unable to work (up to a weekly maximum of about $2,000).

However, if you’re looking for comprehensive income protection, ACC alone is unlikely to be enough. In fact, ACC only covers you if your injury is accident-related. And even if your injury is covered, ACC will expect you to return to the workforce as soon as you’re well enough, either in your pre-injury role or in an ‘alternative suitable role’ (which could be lower paid).

In other words, this protection is not as flexible as you might need, and you’ll have limited control over your return to work.

What if you’re not off work due to an accident?

There’s another key reason to consider income protection: while accidents happen all the time, unfortunately, serious illnesses are also common.

It’s not a comfortable thing to think about, but what if you fell ill and were unable to work for a significant amount of time? Would your family be able to meet their financial commitments, or keep their current lifestyle?

Unlike ACC, income protection can make all the difference in this scenario, by providing you with comprehensive, flexible cover to safeguard your most important asset – your ability to provide for your loved ones, no matter what life throws at you.

Like to discuss your needs?

Looking for ways to protect your family’s financial future? There are many options to choose from, depending on your needs: an experienced insurance adviser can help you navigate the available solutions, and structure your cover according to your goals and budget.

Like to get the conversation started? Click here to find a financial adviser specialised in Personal Risk near you today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.