Indemnity Value
Indemnity Value is a type of Income Protection policy where the monthly benefit is based on your income at the time you make a claim, subject to your policy's terms and conditions.
Indemnity Value is one of the most common ways Income Protection Cover is structured in New Zealand. Unlike Agreed Value, where the benefit is established when the policy is taken out, an Indemnity Value policy assesses your income at claim time to determine how much you're eligible to receive.
When you make a claim, the insurer will usually review your recent income using documents such as financial statements, payslips or tax returns. They then calculate your benefit based on your policy terms and your earnings immediately before you became unable to work.
This approach is designed to replace a portion of your actual income at the time of disability, helping to ensure the benefit reflects your current financial situation. If your income has increased since you first took out the policy, your benefit may also be higher (up to the policy limits). Conversely, if your income has decreased, the amount payable may also be lower.
Indemnity Value policies are suitable for many people, including salaried employees, self-employed individuals and business owners. The right structure depends on how stable your income is, your occupation and your financial goals. An adviser can help you determine whether an Indemnity Value or Agreed Value policy is the better fit for your circumstances.
Why It Matters
Understanding how your Income Protection benefit is calculated is essential. With an Indemnity Value policy, the amount you receive is linked to your actual income when you claim, making it important to keep your cover aligned with your earnings over time.
Common Misunderstandings
"My benefit is guaranteed when I take out the policy."
Not with an Indemnity Value policy. Your benefit is generally calculated using your income at the time of your claim, subject to your policy's terms and limits.
"If my income increases, my policy automatically increases."
Not necessarily. Your maximum benefit is still limited by the amount of cover you've selected and your policy conditions.
"Indemnity Value is worse than Agreed Value."
Not at all. Each structure has its advantages, and the right option depends on your income, occupation and personal circumstances.
"I don't need to provide proof of income when I claim."
In most cases, you'll need to provide evidence of your income so the insurer can calculate your eligible benefit.
FAQs about Indemnity Value
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It's an Income Protection policy where your monthly benefit is generally based on your income immediately before your claim, subject to the policy terms.
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The insurer usually reviews your recent earnings using financial information such as payslips, tax returns or financial statements, depending on your employment situation. Typically the maximum they cover is 75% of your income.
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It can suit a wide range of people, including employees, contractors, self-employed individuals and business owners.
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Indemnity Value calculates your benefit based on your income at claim time, while Agreed Value establishes the benefit when the policy is taken out.
The way your Income Protection benefit is calculated can make a significant difference if you're ever unable to work. If you're unsure whether an Indemnity Value or Agreed Value policy is right for you, talk to a New Vision Financial Services adviser. We'll explain the differences, review your circumstances and help you choose the cover that provides the protection you need.