Income protection insurance is one of the most important insurance covers you can have. As we have said before, your ability to earn an income is your greatest asset.
Many income protection policies also come with add-ons. These vary between providers – some are included in the policy, whereas others carry an additional premium. To make sure you are getting the most from your income protection policy, it is worth knowing what add-ons are available.
Dependent Caregiver/Relative Benefit
When you take out income protection, you are insuring your ability to earn an income. While it is obvious that this is dependant on your health and wellbeing, none of us exist in isolation. Having a relative suddenly needing care can impact your ability to work.
This is where the Dependent Caregiver Option comes in. As an example, the Partners Life policy will pay out six months of your cover if you need to care for a parent, child, sibling, grandparent, grandchild, mother-in-law, father-in-law, spouse, de facto partner or civil union partner.
There are restrictions and differences between providers, which is why it is always best to speak with your adviser to find the policy that best suits your needs.
Income protection covers you until you are 65 years old, which is great for an income throughout your working life. However, if you start to claim relatively early in your working life, what happens after you reach the age of 65?
If you choose the Retirement Protection Option add-on, you can choose to have 2 percent, 4 percent or 6 percent of your pay-out contributed directly to your Kiwisaver fund. It could mean your retirement savings do not languish when you are unable to work.
If your income protection claim covers a long period of time, you will need to protect your pay-out from inflation. While $5,000 a month may be fine right now, it may not be sufficient in 20 years.
Including inflation protection in your policy means the pay-out will rise in line with the CPI adjustment for inflation.
Payment Term Restriction Option
Some providers will include a restriction on mental health or certain physical conditions. For example, Partners Life has a Mental Health Restriction and Fidelity Life offers a Spine or Mental Disorder Restriction.
These are common conditions that are claimed on income protection, so if you opt in to a restriction you can save on your premium. If you were a Fidelity Life client and you opted in to the restriction, you would only get two years paid out on a spine or mental health claim – but you would save 20 percent on your premium.
If you include the booster option when setting up your cover, you can boost the benefit by 30 percent for the first three months of the pay-out. Most claims are completed in 3 to 6 months, so this is a great option to get more from your pay-out when you do claim.
Specific Injury Benefit
Many income protection policies have a list of specific injuries and illnesses that they will pay a certain amount of your policy before the waiting period is up. These can include (but are not limited to) fractures, loss of a digit or limb, organ failure or burns.
Again, it is important that you know what your policy covers so you can get the most from it should something happen.
How long should you keep your income protection policy?
Income protection is one of the most expensive covers, which means when expenses are cut back it can be the first to go. Recent research by Asteron showed that the average age of income protection claims was 47 years old, and the average age of cancellation was 46 years old.
Working with your adviser, who knows the providers and policies in great detail, means you can work out how to reduce your premiums while maintaining some cover. You will find there are different things you want from your policy in your 30s compared to your 50s.
There are also benefits built in to income protection cover (more than we are able to list here) that may mean you can reduce your other insurances instead, while maintaining income protection cover.
If you want to know more about income protection and the benefits and add-ons available, contact one of our advisers.
Here are a few reviews from some of our existing clients around New Zealand