You don’t ‘need’ to have income protection, however the question you should ask yourself is, what would happen if you fell ill or lost your job and your income dried up? Most Kiwi’s would only last about 3 weeks without their income.

do i need income protection insuranceAlmost every needs income protection insurance, if they do not have alternative sources of income from a single salary or substantial saving and/or assets.  Income protection insurance is designed to help replace part of our income if we should become injured or ill and cannot work.  Our income is considered one of our greatest assets, and though many people do not realize this, it should be covered by insurance in case of loss.

To help illustrate the need for income protection insurance we can compare social behavior and the fact that many of us spend hundreds of dollars each month on medical insurance that would pay for treatment if we should become injured or fall ill.  So what happens to our income if we fall ill or become injured?  For a short time, we may be covered by disability insurance, but for how long?

Looking At Complete Coverage

A total protection plan would include both medical insurance and income protection insurance because one provides for treatment to live and the other provides for protection to live one’s life.  Income protection insurance is designed to protect our income when we suffer from a qualifying event.  The money we would receive from insurance payouts each month is what we would use to pay our bills.  It’s one thing to live through a catastrophic illness or injury and yet another to survive and pay your bills, pay your mortgage and life your life.

A good way to determine if you need income protection insurance is to look at how much it costs you to live.  How much is rent or mortgage? Could you pay that if you lost the income from your job?  How much money each month do you spend on necessities such as food and insurance? Could you pay those bills and buy food if you lost the income from your job?

Income protection insurance is divided into several categories. An Indemnity policy pays up to 75% of your monthly income as defined prior to becoming totally disabled, the amount to be paid is minimum any post-disability income.

An Agreed Value Policy, which can pay up to 75% of pre-disability income to a maximum amount declared within the policy. An agreed value policy is beneficial if your actual income should drop after the policy is in place.  Under an indemnity policy, your payment would be 75% of your actual income.  Under an agreed value policy, your payment would be 75% of your agreed income at the time the policy was taken out.  Within either category, agreed valued or indemnity, there are other types of policies that can be offered depending up on the broker or underwriting company.

Preparing for Loss

There is an age range that applies to income protection policies and beware that the cheapest policy is not always the best.  The minimum age limit is 18, and the maximum is usually 60 years of age, though the maximum age limit can change from one company to another.

Taking the time to look at your income and comparing income to expenses is the first step in answering the question; Do I need income protection cover? It can be a real eye opener for many people as most of do not fully realize how much it actually costs us to live each month. Learning about the different types of policies available and how much you would receive if you lost your income through a qualifying event is also important.  It puts into perspective what is available to you as a resource for income.  There is a sense of empowerment when we take the time to look at the benefits that are available to us.  The income that we earn throughout our working lifetime is the greatest asset we will most likely have. Learning to protect that income is a sensible step to insure our life style and to help protect our assets, credit, and home.

Related Article – Income Protection and Tax

 

 

(This article and all articles on this site are not to be taken as professional insurance advice and information may not be accurate, for insurance advice please speak to a registered insurance broker. We can connect you with a broker by using the form on this site.)