How does it work?When applying for income protection cover, think about how much of your income you'd want to cover in the event you're unable to work due to illness or injury. It's worth noting that you can only insure up to 75% of your income. Once you've decided on your chosen percentage to insure, you'll then have to choose a “wait period”, and a “payment period".
A wait period is the amount of time you wait from the day you make your claim to when your insurance company starts paying you. This time period could range from one month to 13 weeks, it's up to you. After the wait period is finished, your insurer will make regular payments to you.
Your insurer will pay you for the duration of your payment period, this could be for two years, up until retirement, or when you're able to return to work, it's up to you.
How much will I receive if I need to claim?You'll receive up to 75% of your "pre-disability income", this is the income you were earning before you became disabled).
Typically, pre-disability income means your income over any consecutive 12 month period in the last three years before disablement.
Your claim payments can't be more than the amount you have insured. Let's say your income is $50,000 right now. You can insure up to 75% of this (which is $3,125 a month). Even if your income at the time you are disabled has increased, say to $75,000, you would still receive only $3,125, as this is what you had insured.
The claim payments that you receive are taxed as income by the IRD (on the flipside, your premiums are tax deductible).
It's important to check your cover amount regularly and increase or decrease it with changes in your income.