How much income you can insure

Insurers do not let you insure 100% of your income, and the reason is not meanness. A benefit that matched or exceeded your working income would remove the financial reason to return to work, and policies that do that produce longer claims and higher premiums for everyone. The cap is usually about 75%, though some insurers structure it as a lower base benefit plus additional components that can lift the total.

The harder question is what the percentage applies to. For a salaried employee it is relatively simple: base salary, plus regular overtime and commission, sometimes plus employer superannuation contributions. For anyone self-employed it is not simple at all, and the definition in the policy can change the insurable benefit dramatically.

Then there is tax. Where premiums are deductible the benefit is generally taxable, which means a benefit of 75% of gross income arrives in your hand as considerably less. Sizing cover against gross income without adjusting for that is one of the most common ways people end up underinsured while believing they are covered.

1. 1Establish your gross pre-disability income on the insurer’s definition, not your own.
2. 2For a business owner, decide with your accountant whether drawings, shareholder salary or salary plus retained profit is the right measure.
3. 3Apply the insurer’s percentage cap to that figure.
4. 4Adjust for tax: if the benefit will be taxable, work out the net monthly amount you would actually receive.
5. 5Compare that net figure against your essential monthly outgoings — mortgage, rates, food, power, insurance.
6. 6If the net benefit does not cover the essentials, look at the structure again before accepting the shortfall.

One more point for business owners: if the business would continue to incur fixed costs while you are unable to work, business expenses cover is a separate product that insures those costs. It does not count against your personal income protection cap, because it is insuring the business’s outgoings rather than your earnings.

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

• The insurer’s definition of income for your employment or business structure.
• Whether employer superannuation or KiwiSaver contributions can be included in the insured amount.
• Whether the cap is a flat 75% or a tiered structure that reduces at higher incomes.
• Whether the benefit is taxable, which depends on how the policy is structured and owned.
• How existing cover, including employer-provided cover, counts against the limit.
• Whether the insured benefit is indexed, and whether increases require financial evidence.

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.

• Income definitions for the self-employed vary enough that the same person can be offered materially different benefits by different insurers.
• Some insurers allow a higher effective percentage through a base-plus-supplementary structure — the headline cap is not the whole story.
• An adviser can coordinate with your accountant so that the income used at application is the income you can prove at claim.
• Where cover exists through an employer, an adviser can size personal cover so the combined total does not breach financial underwriting limits.

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.