Agreed value vs indemnity income protection

Every income protection policy contains a cap expressed as a percentage of income, usually around 75%. The question these three structures answer is: 75% of what, and measured when?

Under agreed value cover, the answer is settled at application. You provide financial evidence — payslips, tax returns, financial statements — the insurer agrees a monthly benefit, and that benefit is what gets paid. You do not have to prove your income again at claim time. If your earnings have dropped since, the benefit does not drop with them.

Under indemnity cover, the answer is settled at claim. The insurer looks at your earnings in the period before you became disabled and pays a percentage of that figure, up to the insured amount. The number on your policy schedule is a ceiling, not a promise. If your income has fallen, you receive less — even though your premium was calculated on the higher amount.

Loss of earnings cover is a middle ground that has become common in New Zealand. It also tests income at claim, but against a defined reference period, often the best twelve months in the last two or three years, with rules that accommodate variable earnings. For a self-employed person whose income swings, it is frequently the most workable structure available.

The practical risk under indemnity cover is not exotic. It is a parent who moves to four days a week, a contractor who has a lean year, a business owner who takes a lower salary to fund growth, or someone who reduces their hours because of the early stages of the very illness they later claim for. In each case the premium was set on the old income and the benefit is set on the new one.

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

• What financial evidence is required at claim, and for what period.
• How the policy defines income for your situation — salary, drawings, shareholder salary, retained profit.
• The reference period used under a loss of earnings structure, and whether it uses your best year.
• Whether agreed value is available to you at all, given your occupation and how your income is earned.
• Whether the insurer can reduce a benefit that was agreed at application, and in what circumstances.
• How each structure interacts with offsets, since offsets apply regardless of which one you choose.

Every New Zealand insurer writes income protection in new zealand 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.

• Agreed value appetite in New Zealand has narrowed and differs between insurers — an adviser will know current availability rather than what was true five years ago.
• Definitions of income for self-employed applicants differ substantially, and the right definition can change what you are able to insure.
• Where agreed value is unavailable, a well-drafted loss of earnings structure gets much of the way there.
• An adviser can assemble the financial evidence properly at application, which is what makes an agreed value benefit stand up later.

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.