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So you’ve Started EARING MONEY - WHAT’S NEXT?

A young professional's greatest asset is their ability to continually generate an income.

Without your income, you will not be able to maintain your current lifestyle or expand your wealth in the future. It won’t be long until you need to sell your belongings if your income suddenly stopped. 

Hence, protecting your income with Income protection ( a form of insurance), will ensure that you and your lifestyle are protected, if anything unfortunate happens preventing you from earning. And YES! We have helped with several income protection claims, in thousands of dollars, for our clients so, there is definitely a need for it, for most people.

So we bring you our most Frequent Asked Questions regarding Income Protection:

What is Income Protection?

Income Protection is an insurance product that is designed to pay 62.5% - 75% of your Income if you were unable to work due to an accident or illness. It usually pays monthly. 

Why can’t I get 100% of my Income?

Insurers want to encourage people to get back into the workforce. Getting 100% of income can cause certain people not to get back into work. If a disability were serious enough to the extent that someone could never work again – this will trigger an insurance product called Total & Permanent Disability (TPD). Some Insurers have inbuilt TPD benefits as part of their Income Protection product – hence speak to an adviser. 

How long do I need to wait to get paid?

This is referred to as “wait period” - you can choose between (depending on Insurer) 4, 8, 13, 26, 52 or 104 weeks. The longer you can wait before getting paid, the cheaper the premiums. This is because the longer you wait, the less likely you will make a claim. However, beware – do not choose longer waiting periods if you do not have large savings to withstand having to wait longer.  

How long do I get paid out of for?

This is referred to as “benefit period” - you can choose between (depending on Insurer) 1, 2 or 5 years or till age-65. The longer the benefit period chosen, the higher the premiums for obvious reasons.  

Agreed Value Cover VS Indemnity Cover?

Agreed value usually means the amount of cover you get is agreed upfront by the Insurer when you complete an application. This means no need to prove income when a claim is made. This is great for people with fluctuating income such as self-employed individuals. 

Indemnity cover means the amount the insurer pays is determined at claim time. This means there is the hassle of providing proof of income at a tough time. 

Verdict: Always go for an Agreed Value Income Cover. 

Does it cover pre-existing health conditions?

Pre-existing conditions can be treated four ways: 

  1. Results in an exclusion in cover for that condition only. Income cover assessments are usually quite strict due to high claim rate. For example, a minor back pain that occurred within the last three years will still be excluded from cover even though it may have been low severity. 

  2. Insurer will still give cover but will increase the premiums (known as “premium loading”). For example, certain skin conditions can be deemed as high risk of claim, but the Insurer is willing to give cover for it but may increase premiums by a certain percentage.  

  3. If the condition is very serious like cancer or a moderate to severe case of diabetes – no Income cover will be given at all (known as “deferred” cover). 

  4. The insurer may not have an issue with it and give full cover – such as childhood asthma. 

Can exclusions/ premium loadings be removed in future?

Yes, but not all – it depends on what it the exclusion is. Some Insurers give us indications that certain exclusions/ loadings can be reviewed in future. An example is the minor back pain above – if it gets to a point where the last symptom is more than 3-years (ball-park figure), the Insurer may remove the exclusion.  

Does it cover Mental Health?

Yes (unless its pre-existing). Mental Health claims have been on the rise and a substantial percentage of Income Protection claims are mental health related. 

Does it cover Redundancy?

No – redundancy cover is different but can be tied with your Income cover. An adviser can guide you through that. 

What if ACC is paying me?

ACC pays out for accidents only (not illness). If ACC pays then it will offset traditional Income Protection. However, there are Income Protection products that do not get offset by ACC. An insurance adviser knows how to maximise your Income Protection potential that won’t get offset by ACC. 

How do I apply and what do I need?

When applying for Income cover – we usually go through a robust process where we request your ACC claims history and for you to look at your medical notes, so we don’t run into a situation where a claim is denied due to non-disclosure. 

You will need to disclose medical history and have payslips ready. If you are self-employed then you will need two-years of financial statements (there are specialised product for self-employed). 


The contents of this article are for information-only and may express the opinion of the writer. This article is not be taken as personalised financial advice, as everyone’s situation is different. Please always seek advice from a financial adviser before making any decisions with your personal and/or business finances.


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