Comparing income protection insurance

With so many choices in life, decision-making is part and parcel of practically everything we do, whether that’s choosing to have tea and toast for brekky or blitzing up a smoothie, or weighing the benefits of taking public transport to work versus driving in. Choices are everywhere! Also, speaking of work, have you ever considered protecting your ability to earn an income?

It doesn’t matter what you’re in the market for, it’s always a good idea to shop around before settling on your final choice. Which is why, before getting income protection insurance, you may want to read on to learn a few considerations that may be worth keeping in keep in mind, when comparing income protection insurance. 

What is income protection insurance?

Income protection insurance is designed to pay a part of your lost income if you become sick or injured and can no longer work. 

For example, if someone received a medical diagnosis and had to spend time getting treatment and recovering, their workplace might only have a limited number of sick days they could pay for. After that, they might not be entitled to any payments, but may still have bills to pay.

Kiwis receive such diagnoses every year. As an example, there were 27,869 new cancer registrations in 2021 alone, which means that potentially, tens of thousands of us are managing both sickness and potential income challenges every year (and that’s not even counting heart attacks, strokes, and other sicknesses). 

Income protection insurance and ACC

Of course, many Kiwis will receive payments from the Accident Compensation Corporation (ACC) when they become injured in an accident. 

However, the ACC is quite specific in that it only covers injuries from accidents. It does not cover sickness, conditions from ageing, or emotional issues. 

How much income protection insurance do you need? 

When you take out income protection insurance, you will typically be able to choose how much of your pre-tax income you want to cover, up to a certain percentage and amount.

It’s important to remember that usually, the more you want to have covered, the higher your premiums will be. As such, you may start by thinking about how much you would need to pay your bills and live day-to-day, then determine how much cover you may need. 

How to compare policy features

If there’s one thing to know about any kind of insurance, it’s that there are lots of fun bits of jargon to learn. One of those industry terms is ‘policy feature’, and you’ll see it a lot as you shop around. 

Basically, this is how one insurance provider will set itself apart from another. Since the insurable percentage of your income can be the same whether you go with provider A or B, the policy features can be one of the things you look at to help you make your decision. 

Other policy features include worldwide cover (so can be covered even if you are travelling or working overseas), and whether there is a ‘cooling-off’ period of any kind where you can change your mind and cancel your policy. You might also come across features such as a "recurrent disability benefit", which in a nutshell means that if your sickness or injury returns within a specified amount of time of your last income benefit payment, it’ll be counted as a continuation of the original claim. 

Be sure to explore each provider’s features, and determine which ones are most important to your circumstances. 

The benefit period 

Now for the other stuff – benefit periods. 

The benefit period refers to how long you would receive payments for, should you become sick or injured for a certain period of time. 

For some policies, you might choose a set period of time, such as two or five years. But other policies will base it on a birthday, such as turning 65. 

So, as an example, if someone were 40 years old and were diagnosed with some kind of sickness or injury where they were permanently disabled, some policies might only pay them for the following two or five years – whereas others might provide payments all the way until their 65th birthday. 

What are waiting periods?

With income protection insurance, a waiting period refers to how long after you are diagnosed with your eligible sickness or injury that you will need to wait before you will receive your first income benefit payment. Typically, these are either 30, 60, or 90 days. 

The waiting period you opt for will influence the premium you pay, with the shorter periods usually resulting in higher premiums. 

You may need to consider how much sick leave your work includes in your contract and how long you could manage bills without income support, then decide which waiting period will best suit your needs. For example, if you have a good emergency fund saved up, you could potentially opt for a longer waiting period in order to minimise the cost of your premiums.

Additional considerations

Responsibilities have a way of building up on you. Whether it’s a mortgage, kids, ageing parents, student loans, or a business to run, many of us have a vast collection of responsibilities to think about every day. 

Income protection insurance can be one way to get a little peace of mind if you rely on your income to look after those responsibilities, as well as any others you have! That’s why a potential consideration is that if you add another responsibility to your collection, it could be a time to see if you need to update your level of cover as well.

Similarly, if you get a pay rise or change jobs, you may consider letting your insurer know as soon as possible so they can keep your policy up to date. 

Planning for the unexpected

And one more thing – income protection insurance premiums are often tax-deductible. So don’t forget to include them at tax time (if eligible) for an extra little bonus on your return. 

Learn more about OneChoice Income Protection Insurance today. You may also consider requesting a quote online to potentially lock away some of that sweet peace of mind. 

This article is an opinion only, provided for general information purposes and shouldn’t be considered or relied upon as professional or personal advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.

28 Sep 2024