iStock_000004625200_ExtraSmallMost adults understand what happens if the head of household dies. This is why 50% or more of New Zealanders have life insurance. We all understand what happens if we do not have health insurance and somehow suffer a major medical event. So why is income protection seen as something that is unnecessary. The financial risk to a family is somewhat larger if the head of household is unable to work because of illness or injury that cause disability.

Understanding the Value of Income and The Risk of Losing it

The risk of losing ones income through disability is greater than losing ones income due to death, and yet statistical data presented on many insurance websites indicates that only 11 percent of New Zealanders purchase income protection. Could the reason for not having income protection be because of confusion over ACC? Do people not understand the risk that is involved with not having income protection?

ACC vs Income Protection

We know that ACC covers us in the case of an accident, but does it cover us in case of illness. The answer is both yes and no. ACC does not cover ordinary healthy issues such as heart attack or stroke unless those conditions are the result of an accident. If a tree falls on your car while you are driving along, and you suffer a heart attack, ACC may cover your lost wages while you recover. The relationship between ACC and pre-existing conditions is also a grey area. If you suffer from a pre-existing condition such as degenerative joint disease and ACC will cover you until you are back to your previous condition, and that is seen as your condition including your debilitating disease.

While ACC is reliable in some cases, it should not be relied on to cover income loss through disability. Considering what ACC does not cover and the fact that it takes people longer to recover from illness or injury income protection just makes sense. The reason for this is that modern medical advancements are saving more lives than they did in the past. Saving lives equates to longer recovery periods for patients, and that means more time out of work. A longer recovery period is not going to be paid for by life insurance. This is why income protection is important to every working adult.

One of the primary reasons that people turn down income protection insurance is the cost. Consider that a working career that spans 20 or 30 years can be worth millions of dollars. Any interruption to that career is likely to cost more than the premiums for income protection. Can afford to sacrifice one or two years worth of annual income? The answer is likely no, and yet people sacrifice a great deal more when they do not have income protection. There are case studies upon case studies that document how people fall ill and can never go back to work. How much income does such an event cost in lost wages?

Case Study:

Think about the stories that you hear from your friends. Tragic events happen every single day. Brian is a 26 who worked for four years as a pharmacy technician. He is married, has a daughter who is 3. One day while bending over to picking up his daughter he feels a sharp pain in his left eye and blurred vision. In the 45 minutes, it takes for his wife to get home the pain has increased and he can not see out of his eye. Brian has suffered a tear in his retina. Following surgery, and for the next six weeks, he is confined to bed in a face down position. The problem with Brian’s case is that his injury reoccurs 17 days after recovery.

Brian has suffered a random injury that he never thought would happen to him. This is just one example of thousands of cases that cost people a chunk of their life-income. This is also a good case to review because of Brian’s age. It brings to light many points that people dismiss or fail to see. An accident or illness can happen to anyone at any age. Understanding that the income that is made over the course of your working life is an asset that needs to be protected is also critical. Working adults will opt to pay for car insurance, life insurance, health insurance and yet only 11% are willing to protect their income from loss.

Where To Find Income Protection Insurance

Income protection is not difficult to find. It is offered by banks, and it is offered by insurance brokers. Banks by nature tend to be limited to just their version of income protection; whereas, a broker many have many different policies from which to choose. It should not be confused with mortgage protection insurance which is similar, but does not usually cover lost income. It may pay your mortgage, but that is about all it will pay. Income protection pays 55-75 of your annual income as a month payment. The policy holder decides how that money is spent.

Tips For Filling Out Your Application

Issues usually revolve around understanding what is covered and what is not. If you have a pre-existing condition, then be prepared to list that on your application. Chances are it will be excluded, or the policy may be priced to reflect the added risk of the pre-existing condition. Failure to fill out the policy accurately is one of the primary reasons why insurance companies either reject an application or reject a claim. The advantage is to the policy holder to be honest when they fill out their application, because it allows for a clear and decisive policy that the holder can then approve or reject. Either way, all parties involved understand exactly what is covered and what is not.

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