How does Income Protection actually work?

You’ve been told it’s a good idea to have it… but how does income protection actually work?

In a nutshell, Income Protection provides you with a regular monthly payment to help replace your income if you are unable to work due to illness or injury. It provides for you and your family through, what can be, a really tough time. When you very first take out an Income Protection policy you make some choices about how it will work. These choices include:

1. how much of your monthly income you want to replace, from either 60% or 75% of your average monthly Income (before tax) up to a maximum of $12k per month
2. how long you want payments to continue for - either 6, 12, 24 or 36 months
3. how long to wait to receive your first payment, either 30,60 or 90 days from the time you are unable to work
4. you choose how you pay – monthly, half yearly or annually

These choices will affect your premium. You can use our Quote tool to help you work it out and to see what a difference the different choices can make.

Then once your policy is in place, but if you don’t need to make a claim:

• If you are made redundant while your policy is in place, we'll pay your premiums for up to 6 months while you're looking for another job
• Your policy will remain in place until the end of the month in which you turn 65, unless you cancel it before then
• If your income goes up your level of cover can to. You just need to let us know within 60 days of your income increasing. Alternatively, you can apply for an increase at any time
• Your amount of cover will increase to take account of CPI each year, unless you advise us otherwise
• You can change the beneficiary (the person we pay any claims to) of your policy at any time
• You can apply to change your waiting period and cover period at any time
• Your payments will increase each year as you get older

If you do need to make a claim because you have an injury or illness that means you can't work, then contact us and we'll help you through the claim process. Then,

• Once your claim is approved, your first payment will be made on the last day of the month that you complete your wait period.
• Provided you remain unable to work, we'll keep making monthly payments until you reach the end of your chosen claim period.
• If you die, any life cover claim will be paid in New Zealand Dollars to the life cover beneficiary.

Payments from your income protection policy can be used however you need, such as paying household bills, paying your rent or mortgage, your groceries, even going to the movies. It simply takes the stress out of the possibility of having no income.

Every year over 50,000 New Zealand households have someone in the family who is unable to work for 3 months or more. While ACC covers accidents, it may not replace all your income and it won't provide for your family or cover your mortgage if you become ill and can't work. And yet only 26% of households have somebody with Income Protection insurance. Make sure you’re one of them.