Saturday, July 6, 2013

Income Protection: Unimportant or a Necessity?

"Online research by insurer AIA last year found that 87 per cent of (Adult New Zealanders) have car insurance, 50 per cent life insurance and only 11 per cent income protection insurance."

After reading such figures, outlined in an article by Diane Clement in an article for the NZ Herald, it raises the immediate question; does this reflect the fact that income protection is less important to have than either car or life insurance? Or is it something else?  Could it reflect the fact that the benefits of car or life insurance are generally well known and understood and cover such as income protection is more unknown, more marginalised, or thought of as unnecessary?

We can often foresee the fact that if we were to die, we would leave behind an uncomfortable financial situation for our family or dependants. After all, its hard to earn a living when you've passed on, and that's a fact that's as clear as day. Hence we see a fairly high percentage of New Zealanders find life insurance something worth investing in. Even more of us can see that car accidents are a real and viable risk. We see them every day on the news, many of us have experienced them first hand and hence we see car insurance as a necessity. The need for income protection however, is perhaps not as immediately obvious.

In our minds, critical illness can sometimes become an 'all or nothing' type proposition. Either we are healthy and able to earn a living or we are struck down critically and pass on quickly, at which time our life cover will provide for our beneficiaries. Unfortunately, the stats aren't kind to these assumptions. As covered more fully here, 94% of deaths in New Zealand only come after a protracted and extended disablement process, during which the sufferer will be unable to work or earn a living, and during which basic life insurance will not be able to be claimed upon. This is the time though, that an income protection policy WOULD kick in, replacing your lost income and making sure your expenses are covered as you go through the recovery process.

 "People will often take life insurance cover and reject income protection insurance as "too expensive", says industry analyst Russell Hutchinson of Chatswood Consulting, even though it is the more valuable cover. They underplay their chances of having an accident or falling ill."

This seems to be the sticking point. We regard death as inevitable and so a large percentage of us prepare for it with life cover. But when it comes to our health, we tend to think that things will largely remain consistent, squared and away.

"Other common reasons that people don't take out income protection or related insurances, says Cave, are that they:

* 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."

 All these issues can be fairly easily dealt with and worked through. In our practice, we've seen a lot of cases where income protection has really helped out our clients, similar to the one cited in the original article:

"A 47-year-old customer who suffered a stroke while playing Pictionary. The man couldn't return to work in his profession as a rock driller for the rest of his life. Thankfully his income protection insurance will support him financially until retirement."

If you are financially able, an income protection policy is something that we heartily reccomend. If the costs are prohibitive, and you find yourself having to choose between income protection and other insurance cover such as basic life, trauma or permanent disablement we advise definitely taking the time to check out the benefits offered by each and considering your personal needs, or ask us and we can help you sort out which cover is best for you.

According to the statistics, a working couple has a 1/3 chance of one of its members suffering a critical illness, and with only 11% of New Zealanders having income protection, a scary amount of people are going to find themselves in need of cover and not having it. Perhaps its something worth considering? Stay tuned in the near future for an article describing in more detail the possible types of income protection, their features and possible benefits. 

1 comment:

  1. Income protection or bill cover insurance is very important especially to citizens of countries that has an unstable economy.