Life is unpredictable. We plan for holidays, weekends, and all the fun stuff- but how many of us plan for what could happen if we’re suddenly unable to work for an extended period due to illness or injury? If you haven’t thought about that before, Income Protection insurance could be the answer you didn’t know you needed.
But what is it? Who needs it? And is it right for you? Here’s a closer look at how Income Protection works and why you may need to consider it.
What is Income Protection?
Income protection is insurance designed to replace a portion of your regular income if you can’t work because of an illness or injury. It’s like having a financial cushion, giving you the breathing room to focus on getting better, rather than worrying about bills piling up.
How is Income Protection different from ACC?
Many Kiwis think that ACC will cover them if they’re unable to work - but that’s only true in certain situations. ACC only covers injuries caused by accidents, meaning it won’t provide support if you’re unable to work due to illness or a condition that wasn’t caused by an accident. That’s where income protection comes in.
Income protection covers a much wider range of situations, including illnesses and non-accidental injuries. If you're diagnosed with a serious illness or face a condition that keeps you out of work, income protection can provide financial support. However, if you’re receiving any ACC payments or other forms of income while on claim, these will be deducted from your income protection payments, so you will not receive more than your usual income while you recover.
How Does Income Protection Work?
If you cannot work for a while due to an illness or injury, an income protection policy kicks in, helping cover a percentage of your income. How soon payments start will depend on the waiting period you select when you take out your policy. Depending on your policy, it can pay out for a set period or until you’re back on your feet and ready to work again.
Think of it as your financial fallback when life takes a turn. It’s there to cover the essentials - such as your rent, mortgage payments, groceries, or any other expenses.
Who Needs Income Protection?
Income protection insurance is valuable for almost anyone who relies on their income to pay for your lifestyle; including bills, mortgages, rent, food, and any other ongoing expenses. You may consider income protection more if you;
- Are the main income earner in the household (especially if there is only one income)
- Are self-employed and don’t have benefits such as sick leave
- Have monthly financial commitments
- Don’t have enough savings to live off if you were to get sick or injured
- Don’t have anyone who can step-in to financially support you
Income Protection vs Savings
It’s often thought, “why not just save up for emergencies?” While savings are necessary, they can drain quickly in a long-term situation. Kiwibank research also showed that 63% of Kiwis are struggling to put money aside in savings (State of Saving in Aotearoa) - and many Kiwis struggle to have enough savings. Income protection, on the other hand, provides a sustainable source of income, ensuring you’re financially secure if you’re out of work for a while.
Is It Right for You?
If your income is essential to keeping your lifestyle steady, income protection could be the smart backup plan you need. No one likes to think about the “what ifs,” but having income protection in place means that if life throws a curveball, you’re ready.
