A Realistic look at Income Protection
Your ability to work is your single biggest asset.
It’s your ability to earn money that gives you independence, freedom and the passport to lifestyle choices.
Most of us insure our cars (which in some cases may be worth as little as $5,000). Nearly all of us insure our houses. We wouldn’t dream of being uninsured.
Yet less than 5% of New Zealand households insure their incomes, without which, there would probably be no house, boat or holiday home to worry about.
Your chances of being unable to work?
Every year more than 284,000 New Zealanders aged between 15 and 64 are prevented from working for more than a month due to sickness or injury. And more than 217,000 are unable to work for a period less than a month. When combined that’s a staggering figure of 501,000 (or one sixth of the population).
It’s a fact that right now, more than 20 in every thousand workers are unable to work because of illness.
And it’s unlikely that any of them thought it would happen to them.
What if it happens to me?
If you have an accident, your income will fall by at least 20% (ACC may provide 80% of your income).
Some 32% of all disabilities suffered by workers are caused by “non-accidents” and therefore not covered by Accident Compensation. More importantly 60% of the workers disabled for periods longer than 12 months were disabled by “non-accidents”.
If you get ill, your income will drop to that of a Sickness or Invalid Beneficiary.
Consider these lifestyle changes...
If you’re a family person who gets sick it’s obviously not just the quality of your life that could be affected. Other questions that may arise are:
Would your children still be able to attend the same school?
Would they be able to continue their extra curricula activities like ballet, skiing, rugby, tennis, guide or scout camps?
Could you afford a professional caregiver for you or your children?
If you’re a single person ask yourself the following:
On a Sickness Benefit could I afford to keep living in my own house or pay the rent on my flat?
Would I have to move in with my parents or live in a boarding house with others who cannot afford to live independently in society?
Who would help me with cooking and banking and shopping?
Could I afford to socialise with my old friends on a night out?
How to judge if you need Income Protection Insurance
The short answer, or rather question, is how much do you value your current lifestyle and independence?
Obviously the more you can earn the more you have to protect. But the cost of the protection will be lower, and you may not need as much of it, if you already have accrued holiday, long service or sick leave.
Some general guidelines are:
The closer your usual expenditure is to your usual income (the less you save), the more likely you are to require this type of protection. Those who say “I can’t afford it” generally are the very people who can’t afford not to have their income for any length of time.
Employee earning $40,000+
If you earn more than $40,000 a year, work full-time for an employer, then you probably should have income protection.
Employee earning under $40,000
If you earn below $40,000 you may find you are in a “neutral” position and may not need to consider income protection insurance, especially considering the premiums will affect your disposable income.
You don’t need Income Protection if...
You have a guarantee you’ll never be unable to work because of sickness or an accident.
You could live happily on a Sickness or Invalid
You work on a part-time basis only.
Want balance in your life, ensuring you have the right amount of everything? Share your hopes and dreams. Plan your future and let me help you make sure you have peace of mind along the way.
Amy Callon
Financial Adviser
New Vision Financial Services
Plan your future and let us help you have peace of mind along the way.