Knowing the ins and outs
Put your mind at ease knowing that you have the right cover for your financial needs.
It’s a question that doesn’t often get asked enough. Do I need this insurance policy or is there something better on offer?
For us to be able to assess what cover is right for you. One must be able to define what each of these covers is primarily designed for and its comparable features. Not all covers are the same and not all providers offer the best in terms of specific features.
Income protection cover
Income protection repayment cover provides a monthly income if you are unable to work due to sickness or injury. It means that while you can’t work due to illness or injury, you can still have money coming in, so you can keep on with your life even though you’re not earning. Each year over 50,000 New Zealand households have someone in the family who is unable to work for 3 months or more.
It is designed to protect your lifestyle and financial outlook. This cover is also worldwide. Although ACC covers accidents it may not be able to replace all your income and it can’t help if you become ill.
In essence income protection covers your costs of living. You pay a premium based on your income and preferences. This is why protecting your income with Income Protection Insurance is so important. For those that are self-employed it may be further reason to add income protection to the mix as relying on ACC income may not be enough as ACC only pays 80% of IRD income unless you have ACC cover plus extra.
You can choose the level of cover usually up to 70% of the income. There is a range for waiting periods. With shorter wait periods being more expensive.
There are some other products in the market that do not offer the same level of protection that mortgage, or income protection cover can offer and may be more inferior in terms of features than full scale income protection. You generally have three options for income protection cover, agreed value, indemnity, or loss of earnings.
If you have Income Protection with us, we’ll provide you with a monthly payment which you can use for whatever you need. Whether it simply helps to cover your bills, groceries, and rent or mortgage or helps pay for alternative treatments.
You can choose the plan that best suits you and your family’s needs, and make sure that you reduce the stress as you recover from your illness or injury.
Key features of Income protection and cover types explained:
• You can have cover up to 75% of your income.
• You can choose Agreed Value Cover (benefit proportion of income agreed at the time you take cover)
• Other option Indemnity Cover (This option calculates benefits payments based on a proportion of your income at the claim time.)
• Loss of Earning option: This option provides flexibility to choose at claim time how you would like to get payment. Based on either an agreed value or indemnity. Whichever is higher. Normally this option is suitable for individuals whose income is higher than $120,000 so that income uncovered after reaching maximum threshold income of ACC can also be covered.
• Generally, income protection policies will “offset” these ACC payments from your claim payments, this means that your claim payments will reduce, or possibly not be made at all if you’re receiving ACC to cover any loss of income.
• Normally Wait period options are 2,4,8,13,26,52, or 104 weeks. The lower the wait period the higher the premium would be.
• Normally payment terms are 1,2,5 years or till age 65 or 70. The higher the payment terms the higher the premium would be.
Mortgage protection cover
Mortgage repayment cover provides a monthly income if you are unable to work due to sickness or injury. This benefit is available so that you can insure your ongoing mortgage repayments. If you’re sick or injured and can’t work, your insurer will make regular claim payments to you It is designed to pay the mortgage to protect your residential owner-occupied property if you are unable to work. Mortgage repayment protection can be an extremely important kind of cover that means your home remains yours even if poor health or an accident limits you from not being able to work.
This protection covers one of the largest financial commitments one can make, your property, and the term of your loan may exceed 25 years or more, so it only makes sense to have some cover in place. It also gives you and your family reassurance that the property is protected should the unfortunate were to arise.
On Mortgage protection cover there is a wait period generally of 30,60 or 90 days of your choosing. These monthly payments continue until you return to work, or the payment period ends. Policy periods differ from provider to provider.
Cover is worldwide and pays a monthly instalment similarly to Income protection cover. Most insurers will cover you for up to 110% -115% of your monthly mortgage repayments.
Key features of mortgage protection explained:
• You can choose your protection amount up to 115% of your contractual mortgage repayments on your residential owner-occupied property.
• Or 45% of your gross income.
• Normally the wait period options are 4,8,13,26,52, or 104 weeks. The lower the wait period the higher the premium would be.
• Normally payment terms are 2,5 years or till age 65 or 70. The higher the payment terms the higher the premium would be.
Side by Side
Mortgage repayment and income protection insurance are similar in claim eligibility terms, both insurance products are designed to pay you a series of ongoing monthly payments if you’re unable to work for a specific time after your chosen wait period. Of course, there are a few differences and they both have unique benefits. You can choose these products according to your needs and situation.
Mortgage repayment cover differs in that it will not typically offset ACC at all, meaning that you can receive both ACC and your full mortgage repayment lump sum.
Proportion of cover can be chosen based on your income or mortgage.
For example, a person with a higher income needs a higher amount of cover than their mortgage repayment, which was paid jointly, on the other hand if an individual income is less, they can have Mortgage repayment cover to protect repayment in case of illness of an individual’s income stopping whilst the other partner is still generating their contribution to household income.
Wait period and terms are different of both benefits.
Both covers serve a purpose, and no two personal financial situations are the same, keeping this mind, Mortgage protection may be a better fit for you and your family due to a major benefit in that it is not offset by ACC.
What this means is that if you have income protection cover as opposed to mortgage protection cover and have an accident at work and you can claim ACC, that you cannot also claim income protection. However, with mortgage protection you can claim on both ACC and also the mortgage protection you would have in place as well.
Although income protection cover can be used for an array of different costs. Mortgage protection cover in place for you and your family, would still give you an opportunity to have the smaller less significant costs covered in place alongside mortgage protection cover yet still reap that major benefit. You can essentially have both in some capacity in place. Your mortgage repayment cover in place can ensure your largest asset remains covered and income protection cover in place to pick up the more minor expenses in your life.
In the end it is all relative to your risk exposure. You have to weigh up your own circumstances and ask suitable questions such as if I lose my income how much of an impact would this have on myself and the family.
Your best plan is to approach a leading professional who can guide you through your best options and work out and review your current financial situation. If you are looking for a fantastic team, prompt help and assistance at claim time, talk to the team at Global Finance today 09 255 5500.
**Underwriting criteria and insurer terms T’s and C’s apply