Income Protection Insurance
When you work out how much you will earn over the rest of your working life, you will be surprised at the size of your earning power.
There are a number of different types of Income Protection cover available and these covers work differently depending whether you are employed or self-employed. This means that there are also a number of different ways that you can structure a policy to suit your financial needs and your budget.
What You Need to Consider for Income Protection
There are three main factors to consider when looking at an Income Protection policy:
- Sum Insured: this can differ from cover to cover depending on how the policies operate.
- Waiting Period: the amount of time before payment is made by your insurance company. Waiting periods can be set at a minimum of 4 weeks up to a maximum of a year. To help you determine the length of your waiting period you should take into account your leave provisions or the amount of time sustainable income is likely to continue from your business or other sources. The longer the Waiting Period the lower the premium.
- Payment Period: this is the length of time you would like income payments to continue if you are sick or injured. Depending on the policy this period can be set at a minimum of payments for one year, up to a maximum of age 65.
Some other factors that are taken into consideration when determining what Income Protection cover would suit you are your occupation and length of time in business (if self-employed).
The amount that is paid out under an Income Protection policy can be affected by income from the Accident Compensation Corporation (ACC).
Policies do differ from company to company and can operate in different ways.
Types of Income Protection Covers
Indemnity
This is a standard Income Protection policy with a sum-insured based on 75% of your pre-disability income (your earnings prior to your illness or accident).
This policy is generally the type of cover recommended to people in a salaried occupation, but can be applied to both employed and self-employed people.
An Indemnity policy has a sum-insured that is taxable, and premiums that are tax deductible.
An Indemnity Income Protection is off-set by any payments received by ACC, but some insurance companies provide contracts which work differently.
Agreed Value
An Agreed Value Income Protection policy is based on a Sum Insured of 55% of your pre-disability income.
This policy is generally the type of cover recommended to people who are self-employed, and have an income that is likely to fluctuate or even reduce.
Once the sum insured is set, you can be certain that this is the amount payable to you, less any offsets, regardless of whether your income reduces.
An Agreed Value policy has a sum insured that is non-taxable, and premiums that are non-tax deductible. Again some insurance companies provide contracts which work differently.
Key Person Protection
In general terms a Key Person Protection policy is not based on your income. Instead the policy provides options in terms of a weekly payment set at a certain level.
This policy is designed to cover newly self-employed people with no prior income from their business, or for businesses who want a cover for a person key to the running of the business.
Depending on the Key Person policy, this cover is not off-set by any other disability payments.
Rural Income Protection
As the name states, Rural Income Protection is a policy designed to help farmers if they are unable to work due to sickness or injury.
Dependant on the company, Rural Income Protection is based on paying a % of gross farm income less any other disability benefits payable to you.
Business Expenses Cover
Business Expenses Protection is designed to work in conjunction with your own Income Protection Cover.
This policy is designed for self-employed or business owners to ensure that eligible business expenses are covered if you are unable to work due to sickness or injury.
What We Offer
The following is a sample of the Income Protection products that we can offer.
- AIA Income Protection (.pdf file, 261KB): Note that AIA has recently rebranded to AIG Life. We will be updating their policy brochures as soon as we can. AIA offers two different personal income protection benefits to suit your circumstances.
- AIA Key Person Benefit (.pdf file, 176KB): Note that AIA has recently rebranded to AIG Life. We will be updating their policy brochures as soon as we can. Designed to pay a weekly benefit in the event of the life assured becoming disabled due to sickness or accident and being unable to work in their own occupation for more than 10 hours per week.
- Fidelity Business Disability Cover (.pdf file, 97KB): Business Disability Cover will pay a business an agreed benefit for up to two years if a key person is totally disabled because of a continuing sickness or injury.
- Fidelity Life Income Protection (.pdf file, 98KB): This policy is a flexible plan that will pay you an income should you be sick or disabled. It has a range of features and additional options to allow you to customise the product to suit your individual requirements.
- Sovereign Disability Income Protection (.pdf file, 524KB): Disability Income Protection guards your greatest asset - your power to earn. It provides you with a monthly payment if you are unable to work due to sickness or injury. It is essential if you have a partner or family dependent that relies on your income to maintain their current lifestyle.
- Sovereign Start-Up Income Protection (.pdf file, 646KB): Starting a new business is challenging enough, without having to worry about how you'll cope if you're unable to work, due to illness or injury. Now you don't have to. Sovereign's Start-Up is an easy and affordable income protection product designed to cover the newly self-employed while you're getting your business off the ground.
