How much income protection do you need

Income protection replaces a proportion of your earnings if illness or injury stops you working. Because the benefit is monthly rather than a lump sum, the sizing question is different from life cover: you are not asking how much your family needs in total, you are asking how much has to arrive every month for the household to keep functioning.

Insurers will not let you insure your full income. The standard structure caps the benefit at a percentage of pre-tax earnings — around 75% is the common figure in the New Zealand market, though some insurers use a tiered calculation that pays a higher percentage on the first slice of income and less above it. The point of the cap is that a policy which paid your full income would remove any financial reason to go back to work.

So the amount is largely set by your income. Where you actually make decisions is on the three settings that decide what the policy costs and when it starts paying.

Waiting period

How long you must be off work before the benefit starts, commonly four, eight, thirteen, twenty-six or fifty-two weeks. It is the single biggest premium lever in income protection. Match it to how long your savings, leave entitlements and any employer sick pay would genuinely carry you — then add a margin, because the benefit is usually paid a month in arrears, so the first payment lands later than the waiting period alone suggests.

Benefit period

How long the payments continue: two years, five years, or through to age 65. A two-year benefit period is much cheaper and covers most claims, because most claims are short. It does not cover the claim that ends your career, which is the one that bankrupts households. If budget forces a choice, a longer benefit period with a longer waiting period is usually better than the reverse.

Agreed value or indemnity

Agreed value fixes the benefit at application, using financial evidence you provide then. Indemnity assesses your income at claim time. For salaried employees with stable income the difference is often small. For the self-employed, whose income can drop in the year before a claim precisely because they were getting sick, it can be the difference between a workable benefit and a token one.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• How the insurer defines income — salary and bonuses, or salary only, and how employer KiwiSaver contributions are treated.
• Whether the policy offsets other payments. Many reduce the benefit by ACC weekly compensation, sick leave or other insurance.
• Whether there is a partial or proportionate disability benefit for a phased return to work. Without one, going back part-time can cost you the whole benefit.
• The definition of disability itself — own occupation, similar occupation, or any occupation. The wording decides the claim.
• Whether the benefit indexes with inflation while you are on claim. A five-year claim without indexation loses real value every year.
• For the self-employed, exactly which business expenses are deducted before the insurable income is calculated.

Every New Zealand insurer writes how much life insurance do you need to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• Offset clauses are where income protection policies differ most, and they are almost invisible on a price comparison.
• An adviser can structure a lower base benefit with a booster layer so the cover fits a budget without losing the long benefit period.
• Occupation class drives income protection pricing harder than it drives life cover, and insurers class the same job differently.
• For self-employed clients, matching the policy to an ACC CoverPlus Extra arrangement avoids paying twice for the same accident risk.
• Agreed value availability has narrowed in the New Zealand market, so knowing who still offers what matters.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.