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. 

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Read the original article here.

Highest health insurance payouts 2012.

"Southern Cross' biggest health insurance payout last year was for a spinal surgery costing $160,000, its latest statistics reveal.

Another spinal surgery cost $151,000 and $100,000 was paid out for a larynx removal.

Cancer, heart disease and spinal conditions were the causes of the highest health insurance claims paid by the association.

All of the patients who made the top 10 highest claims were aged over 64. The oldest was 76.

Chief executive Peter Tynan said it demonstrated the value of insurance. “No one wants to be ill but, if the unexpected happens and you need timely access to treatment, it can be very comforting to have the financial aspect taken care of.”

Those aged under 30 put in a high number of claims for tonsillectomies and dental procedures, for women aged 20-39 endometriosis surgery was common and for people over 50, hip and knee replacements, cataract extraction and skin lesion removals were in high demand.

Tynan said: “If they choose to self-insure, people should have realistic expectations of what they’ll need.”

A survey carried out by Southern Cross last year revealed that 79% of New Zealanders thought they would have to pay for some of their elective healthcare in retirement. But only one in five had started saving and many thought that savings of less than $10,000 would be sufficient."

Original Article Here.

It's always interesting to get a look at figures such as these. Imagine the burden of having to take on those kind of costs by yourself after retirement. The point about self insurance is interesting too, and it plays into a point I have discussed at other times on this blog. New Zealander's sometimes can lack perspective on just how prohibitive illness can be. This is due to a combination of factors, such as inadequate proliferation of the statistics and case studies involved, as well as a strong, independent, yet sometimes wrong headed 'she'll be right' sort of attitude. This attitude has seen Kiwis take on and achieve incredible feats, but it doesn't work so well when applied to your health, your ability to earn and protecting your family or your business from very real risks.

We certainly hope these risks are taken into account and that some of these figures demonstrate that savings of less than $10,000 certainly won't be enough if serious illness rears its ugly head.

Talk to us today about your insurance needs.

Taking medical 'rationing' off the table with health insurance.

Article courtesy of Good Returns.

Two friends have had cancer recently. I use the term “had” in the most optimistic sense. Because although they are both cancer-free, we simply don’t know how long that will last.

For one of my friends their case was similar to a case widely reported in the news media – the doctor has been told off by the Medical Council for not sending his patient for further tests sooner. The client, who fortunately remains alive, has diminished chances of recovering from their cancer because of the delayed detection.

Why does this happen?

Obviously, for the case reported in the media the patient felt strongly enough about it to make a complaint. They must have wondered why their care was not better. 

Is it malpractice?

We simply cannot know enough from the reports to tell, but it does seem like better care should have been taken, it also seems like the punishment handed out was very minor.

Is it just the odds?

Perhaps this is a fine question of judgement, a genuine edge case where the decision could have gone either way.

Is it a reasoned response to the risk of false positives?

As not everyone can be tested every year for every possible disorder some choices have to be made. In some cases there is the risk of false positives to consider, and some tests – like biopsies – carry health risks of their own.

Is it rationing?

That’s the fear: rationing. It’s hard enough coping with the idea of ill health, the possibility of a potentially fatal illness, without having to second guess your doctor – are they not sending me for that test because I don’t need it, or because of the cost to the state sector.

In both of my friend’s cases the immediate treatment once diagnosed was very good, it was just the question of getting a diagnosis.

Of course, the easiest way to take the risk of rationing off the table is to insure it. I’d want to insure it all and have every form of medical cover I can possibly buy – including cover for treatment overseas – but if you are working with a client at the other end of the spectrum, I’d at least get specialists and tests cover." 

In general, the public system does a fantastic job with what it has (as the article admits, the treatment itself is top drawer), but sometimes it just isn't enough and cases such as those described here will slip through the cracks. In my own case, I have seen the benefits of having health insurance when I was diagnosed with Crohn's Disease (full story here) and in my case, having tests and specialist cover as well as basic hospitalisation cover gave me a financial safety blanket and protected me from over $20,000 worth of costs, as well as securing me the best and most prompt treatment available from the private system.

Having the full range of health insurance options is a somewhat costly proposition and we do realise this (although it is no doubt a good thing to cover all your bases in terms of your health). However, there are cost effective and assuredly worthwhile options such as the one I have selected for myself; a combination of basic hospitalisation, surgical cover as well as tests and specialists. The premium is definitely affordable, and it has already, at the age of 27, paid off for me many times over. 

Overall, its always a good idea to take the possibility of delayed diagnosis and rationing off the table as well as protecting from the cost of unforeseen health issues. Don't hesitate to get in contact and let us take the legwork out of securing the health insurance that's right for you.

Email us today at enquiry@sprattfinancial.co.nz

Financial Services Council: Unexpected sickness could destroy families.

In a recent report, the Financial Services Council of New Zealand said Kiwis were under-insured for loss of income from sickness. 

Financial Services Council chief executive Peter Neilson said a two-year research project by the FSC showed just 15% of households had income protection insurance.

All were covered for the possibility of an accident by ACC, but they were more than twice as likely to suffer a serious illness.

Neilson said: “Each year 15,000 primary income earners fall seriously ill and are unable to work for six months or more. For a person on the M tax rate, the sickness benefit is $341.60 a week and this is means tested. If another person from the household is earning income, many families find they are too rich to get a household income tested sickness benefit, but too poor to pay the rent, mortgage or food bills.”

He said most Kiwi families would not be able to pay their mortgage or rent four weeks after using up their annual or sick leave.

For someone on the M tax rate, the sickness benefit is $341,60 a week, means tested.

Neilson said: “If another person from the household is earning income, many families find they are too rich to get a household income tested sickness benefit, but too poor to pay the rent, mortgage or food bills.

Taken from Good Returns article: 'Sickness could destroy families'

Comments: This article is definitely representative of our experience in speaking with members of the public and our own friends and families. It is definitely worth stating that simply put, out of the 85% who have no form of income protection, some simply cannot afford it. However, a good proportion can, and it is worrying that some Kiwis adopt a laissez faire attitude to the possibility of sickness and disablement. We have seen and dealt with many of those 15,000 primary income earners per year that fall seriously ill (including Justin, whose story can be found here). The majority of cases have wished that they had some form of protection in place when the disastrous circumstances of being unable to support a family and a way of life struck.

As Kiwis we can be very tough, self reliant, can do people, but often this can give rise to the mistaken feeling of invincibility, which the statistics show is simply unwarranted. Obviously there needs to be a middle ground between spending too much of the money you don't have on income protection and not having any at all and facing disaster in the event of severe illness.  However, the statistics from other western nations dwarf our percentage of 15% (for instance, 27% of American workers have income protection), suggesting the "she'll be right" attitude of New Zealanders may be getting in the way.

Securing insurance doesn't have to be a chore, or exceedingly expensive. Talk to our team of advisers and let them go to work for you. There is a great chance we can keep your costs down and make income protection cost effective and manageable, so that you don't have to face the trauma of facing illness and disablement without proper cover.

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