What I think about Income Protection Insurance
Today I want to tell you what I think about Income protection policy.
Let me start with a question – have you ever thought how much money would you earn in your entire carrier? Scary thought – right?
In New Zealand you can only insure 55% of your income or 75% of your income.
Income Cover can be a based on “Agreed Value” – means that the insurer agrees with you from the beginning that in the event you had an accident or you are sick you are going to receive 55% of your pre-accident income.
“Indemnity Value Income Protection” means that amount of your benefit is going to be established only after you submit your claim and it is going to be no more than 75% of your specified pre-accident income and the insurer agreed to the amount from the inception of the policy.
In insurance world there is always “premium” and the premiums are based on the quality of financial ratings of the insurer, the quality of the policy itself and the lengths of the benefit, on your age and your gender.
In New Zealand Income Protection insurance has the following characteristics:
The lengths of the benefit are usually – 2 years, 5 years, and up to 65 years. This means that in the event something went wrong and you are “on claim” the insurer would pay your specified “Income” according to the policy wording and the specified lengths of the benefit.
The next major factor which contributes to the cost of your Income Cover is waiting period it can be 2, 4, 8, 13, 26, 52, 104 weeks. Meaning that this is the period of time when you are not going to get any assistance from the insurer- usually income protection benefit is paid in arrears and this should be taken into account and to be account for.
Income Protection premiums
Income Protection premiums normally tax deductible and the premiums you pay for it should be claimed from IRD. Please look at Inland Revenue website to get additional information about taxation on “Income Protection”. The reason for it is simple – if you are “on claim” and start to receive your benefit it is taxable therefore the premiums tax deductible.
Now let’s look at the example:
A man 40 years old, he is an electrician, healthy and non-smoker.
Please download this report for 40 years old electrician to compare major insurance companies to see the difference between product ratings, premiums and financial ratings.