Life is unpredictable, and unexpected turns – like accidents or serious illnesses – could impact your ability to work and earn a living. Do you have a plan B for those circumstances?
In this issue of our Adviser Corner, LifeDirect senior adviser, Tony McCombs, shares his expertise on the key things to consider when considering ways to protect your income from the unforeseen.
Understanding ways to protect your income
According to Tony, here are some important questions to get you started:
If you suddenly couldn’t work, where would your money come from?
- How would your loved ones cope without your income?
- And if you had a serious illness, while still able to work, would you like to afford a break from your job, and focus on your recovery instead?
These are all key questions. And exploring solutions to replace some of your income can be a great way to answer them.”
“You may have heard of income protection insurance, which is designed to replace up to 75% of your gross pre-disability income if you’re unable to work due to an injury or illness. But income protection is much more than that: it’s a lifeline that you can build by combining different types of cover, depending on your needs. And these can include income protection, life insurance, and in some cases even trauma cover.”
A couple of misconceptions to dispel
The role of ACC: “In New Zealand, we’re lucky enough to have ACC for accidental injuries. But as valuable as this financial protection is, it has its limitations. Most importantly, it doesn’t cover serious illnesses or mental health challenges, which could also put you off work for an extended period of time. Income protection insurance, on the other hand, could step in if you weren’t able to work due to a serious illness. And if you had trauma insurance and the illness was one of the covered conditions listed in the policy, you would receive a lump-sum payout – regardless of your ability to work.”
- Affordability and accessibility: “Another common misconception is that income protection insurance is too expensive. But there’s a wide spectrum of plans available, catering to various budgets and needs – and talking to a LifeDirect adviser can help you find a solution that meets your current budget and protection goals.
Based on your situation and the size of your emergency funds, you can adjust the premium amount by tweaking the payment period, the waiting period, and the payment amount. In many cases, even a modest monthly benefit can make a lot of difference down the line. This means that, with a few dollars a week in premiums, you may still potentially achieve a more secure future.”
The importance of seeking advice
“Waiting periods, maximum payment periods, cover amount – with lots of terms and calculations to make sense of, choosing and setting up income protection can be quite complex,” says Tony.
“If you’d like to explore your options with confidence, you don’t have to do it alone. There are experts, like our friendly adviser team at LifeDirect, who can answer your questions and clarify any confusion, based on your circumstances.
“It’s also crucial to understand exclusions. Certain insurance solutions have blanket exclusions embedded in the policy. And then you have your own exclusions, which are related to lifestyle factors or pre-existing conditions you may have at the time of application. This is another area where we can help.”
Make adjustments along the way
“Income protection is not a ‘set it and forget it’ solution. So, make sure you think about the future, and the impact of inflation or changes in your income,” says Tony. “While some insurance solutions adjust for inflation, it’s not always automatic. And in any case, it’s crucial to ensure that your cover amount accurately reflects your current income to avoid potential overpaying or being under-insured.”
Remember: one size doesn’t fit all
“Every individual’s circumstances, needs, and aspirations are unique. What works for one doesn’t necessarily work for another,” says Tony. “But whatever your needs are, the key thing is to have a plan, whether that involves insurance or alternative arrangements. Once again, what is your plan B? Make sure you know what it is – proactivity rather than reactivity is the way to go when protecting your future.”
Here to help
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.