Understanding Income Protection

Your ability to earn an income is your greatest asset, which makes it one of the most important insurance covers you can have.

Of course at its core, income protection is about protecting your income, but understanding the optional add-ons can help you get the most out of your policy. What is available can vary between providers, and while some are included in the policy some come with an additional premium.

Dependent Caregiver/Relative Benefit

Our ability to earn an income isn’t always dependant solely on our own health and wellbeing. If a relative or dependant falls unwell or has an accident, this may also impact our ability to do our job and earn an income.

The Dependant Caregiver Option is designed with this in mind.  For example, the Partners Life policy will pay out six months of cover* if you need to care for a parent, child, sibling, grandparent, grandchild, mother-in-law, father-in-law, spouse, de facto partner or civil union partner.

There are restrictions and differences between providers, and it is your adviser’s job to understand these and help you find the right policy for your situation.

Retirement Protection

While income protection policies cover your income until you are 65, if you claim early in your working life you may not be making the retirement savings you had expected to.

If you choose the Retirement Protection Option add-on, you can choose to have 2 percent, 4 percent or 6 percent of your pay-out contributed directly to your Kiwisaver fund. This can make a big difference to your retirement savings if you are unable to work.

Inflation Protection

If your income protection claim covers a long period of time, you will need to protect your pay-out from inflation. While $5,000 a month may be fine right now, it may not be sufficient in 20 years.

Including inflation protection in your policy means the pay-out will rise in line with the CPI adjustment for inflation.

Payment Term Restriction Option

If you are wanting to save on your premiums you can opt in to certain restrictions. Some providers will include a restriction on mental health or certain physical conditions. For example, Partners Life has a Mental Health Restriction and Fidelity Life offers a Spine or Mental Disorder Restriction.

If you were a Fidelity Life client and opted-in to the restriction, you would only get two years paid out on a spine or mental health claim – but you would save 20 percent on your premium.

Booster Option

If you include the booster option when setting up your cover, you can boost the benefit by 30 percent for the first three months of the pay-out. Most claims are completed in 3 to 6 months, so this is a great option to get more from your pay-out when you do claim.

Specific Injury Benefit

Many income protection policies have a list of specific injuries and illnesses that they will pay a certain amount of your policy before the waiting period is up. These can include (but are not limited to) fractures, loss of a digit or limb, organ failure or burns.

Again, it is important that you know what your policy covers so you can get the most from it should something happen.

If you want to know more about income protection and the benefits and add-ons that are available, contact one of our helpful advisers.

*Note – please check policy wording for claim value before contacting your agent.