What is Income Protection Insurance

What is it?

SMART INSURE – Income Protection Video from Stephen Martin on Vimeo.

Your ability to earn an income is your most important asset. If disability prevents you from working, have you protected your earning power? This policy provides a replacement income of up to 75% of your pre-disability earnings. The policy comes with many important benefits at no additional cost. You can also add one or more optional benefits for which you will pay an additional premium. We aim to help you get ‘back on your feet’ as fast as possible, so this policy includes a range of recovery and rehabilitation benefits.

Why You Need It

The financial consequences of a disability or extended illness could be devastating for your lifestyle and those that depend on you. An average income earner will earn over $1.4 million through their working life. A prolonged absence from work or a return to work in a reduced capacity could have a severe impact on your future financial security.

Two Variations of Cover

Indemnity Value –up to 75% of your gross annual income can be insured if you select this benefit.

• If you are disabled we will pay the monthly benefit less other income until the period of disablement ends, the benefit period expires, you reach age 65 (unless the benefit period is to age 70), or you die. We do not pay a monthly benefit during the waiting period.
• For the first 6 months (less the waiting period) of any claim, the benefit will be based on the specified monthly benefit less other income. The monthly benefit applied for must be substantiated at either application time or claim time.
• After 6 months, the amount of the benefit will be the lesser of the specified monthly benefit or 75% of your pre-disability earnings less other income at the time of the claim.

Agreed Value –up to 55% of your gross annual income averaged over the last three years can be insured if you select this option.

• We will pay the monthly benefit less other income until the period of disablement ends, the benefit period expires, when you reach age 65 (unless the benefit period is to age 70), or you die.
• We do not pay a monthly benefit during the wait period.
• Proof of income must be provided at application time.

Standard Features

Benefit payment period – The available benefit periods are: 2 years, 5 years, to age 65 or to age 70.

Waiting period – You can select the period for which you are prepared to self-insure. We offer seven waiting periods: 2 weeks, 4 weeks, 8 weeks, 13 weeks, 26 weeks, 52 weeks or 104 weeks.

Unemployment – Benefits can still be paid even though you are unemployed, though the definition of disability changes.

Claims escalation – While on claim, your benefit will be linked to the Consumer Price Index (CPI) and adjusted every quarter.

Income Protection Insurers – Who We Use

Here we at Smart Insure we think that clients should have the choice of all companies products however at the same time we will show an independent rating of any products that we recommend. Current income protection insurance companies we use are:

Difference Between Companies

There are many key differences between each company and the products that it offers our service tries to bring you the best product for the best price. Differences between each company can be as follows:

• Big differences in premium price
• Not all companies offer all products – i.e. Health Insurance
• Some companies offerings are of a lesser quality than others
• Benefits can vary widely between companies and products
• Underwriting experience – some companies will be more lenient on certain medical conditions than others and/or cover pursuits or past-times that other insurance companies wouldn’t cover
• Financial stability rating
• Some insurers may not offer cover for your occupation
• Claims experience – we can add our claims and the industries claims experience into the equation

ACC & Income Protection Insurance

Difference Between the Two

ACC pays out for injury only and will pay up to 80% of your income after expenses after 1 week up to a maximum of $94,553 in the 2015 FYE. So if you earn over this amount then you will not be entitled to receive any higher income from ACC.

Income protection insurance pays out for both injury and illness (including depression) and will pay up to 75% of your income after expenses up to a maximum of $300,000 p.a. depending on the insurance company.

Key Differences

• ACC only covers accidents and is limited to a lower annual level of cover.
• Income Protection pays out for both illness and injury and provides higher levels of income cover.
• ACC is based on your last 52 weeks of earnings, whereas income protection you can either choose to have an agreed amount or chose the best consecutive 12 months of the last 3 years.
• If you salary split then ACC does not take this into account whereas private insurance does, income protection insurance also recognises such fringe benefits as cars as income whereas ACC does not.
• Income Protection protects you for the job you do and the insurance company could not force you back into another occupation.

PAYE Earners

If you are in a PAYE role then your employer is paying your ACC levies, however you may realise you are only covered up to a certain level of income as mentioned above with ACC. Generally income protection and ACC offset against each other so this could mean in an accident claim you may not be eligible for a claim from your insurance company. However if you structure your insurance to have a type of income cover called “mortgage protection” you can receive both an ACC claim and a private
claim so theoretically you could receive 100 per cent of your current salary or potentially more.

It pays to speak to a qualified financial adviser in regards to this in order to get the correct advice.

Non PAYE Earners

If you are self-employed or a shareholder employee then you have options.Firstly because your income can fluctuate you would want some certainty with your ACC pay-out you can achieve this by switching to ACC CoverPlus Extra (CPX) this allows you to agree to a level of cover from ACC which you do not need to prove at claim time. This is especially useful if you have fluctuating income.

You can also dial back your ACC cover to lower levels of income and then top this up with private cover with income protection which covers both sickness and injury.

Once again we recommend speaking to a qualified financial adviser who can help assist with both the ACC and private insurance advice.

Income Protection Insurance FAQ

Application FAQ

How Do I Apply?

So you have decided that you wish to apply for some income protection insurance, what’s the next step. We have the following options to make it easy for you:

• Online access
• Over the phone
• Paper forms

The next step is to decide which option suits you best and then we can get the paperwork underway. We provide you with all the companies’ prices and then add a discount and then provide the 3rd party research so you can make your own informed decision and/or consult with one of our qualified expert insurance advisers if you have further questions.

Next Step

Fill in the application form over the phone, online or the paper based application. This is then submitted to the insurance company, depending on what you are applying for and your medical information this may be it. If there is no further information needed all we need is a signed declaration page and a direct debit form filled out which you can do online and that is it.

Further Information Required

Depending on what you are applying for or your medical history the following may occur:

• Telephone call required from insurance company or Smart Insure to get further information
• Medical information requested from your GP
• Medical test or blood tests requested by the insurance company

Once all the information the insurance company requires is received they will come to an underwriting decision which will either be assessed as standard or with special conditions. Special conditions are either an increase in premium or an exclusion where something will not be covered under your insurance cover; i.e. a shoulder exclusion.

How Long Does It Take To get Into Place?

This really depends on whether we need to obtain your medical records and need any further medical tests done. Generally an income protection insurance policy which has no medical requirements or records needed can be in place within 2-3 days.