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    When you think of your assets, you probably picture tangible things like your house, car, boat or maybe some particularly valuable jewellery. But most people have one significant asset that isn’t so visible – earning power. Over your lifetime, your income will add up to millions of dollars, making it one of your most valuable assets.

    Even though its essential, many people fail to safeguard their income, while less valuable assets like cars and property are almost always insured. Income protection insurance keeps the money flowing in, so you can maintain your lifestyle even if you’re injured, unwell, or permanently disabled.

    Injury, illness, and income

    Whether you’re a renter or a homeowner, a single person or part of a couple, childfree or a parent, your income is vital. It covers your rent or mortgage, utilities, and other bills, car maintenance and gas, not to mention food, entertainment, and any unexpected expenses that come up.

    Losing your income unexpectedly can mean being unable to cover essential costs, which is obviously a serious problem. If you have savings or a partner contributing to expenses, you may be able to stay afloat for a while, but beyond that, loss of income can be devastating.

    Of course, most people don’t imagine that they’ll be affected by serious illness, disability, or injury. If you’re generally healthy and in a low-risk office job, you might think the likelihood of needing income protection insurance is low. However, if you consider that every year almost 4000 New Zealanders are hospitalised as a result of car accidents, around 230,000 claims are made for work-related injuries, and more than 23,000 are diagnosed with cancer, it starts to seem more likely.

    Although nobody wants to think about being injured at work or in a car accident or being diagnosed with cancer or another serious disease, it’s far better to prepare for the worst and not need it. The alternative is not preparing and being left with nothing when your luck runs out.

    Redundancy and job loss

    Losing your job is devastating in a different way. If you’re fired or made redundant, you’re likely to return to work at some stage. But it can take a while to re-join the workforce, particularly if you’re older or in a niche field.

    Losing the income from your job, even for a few months, can be very difficult to deal with. It helps if you have a partner to cover some of your expenses, but it will still put pressure on your relationship and your finances. This can result in you making a rushed or pressured decision and taking a job that isn’t right for you or isn’t paid as much as your previous role.

    Although many income protection plans do not cover you for job loss, some do. If you’re in a field with a lot of lay-offs or restructuring, or you’re concerned about your ability to get another job if you lose yours, it’s worth choosing a plan that offers redundancy cover. That way, if it takes you a few months or more to find a new position, your expenses will be paid, and you won’t be under so much pressure.

    How income protection helps

    Income protection insurance is designed to replace lost income if you’re unable to work for an extended period. Unlike life or trauma cover, which usually pays out in a lump sum, income protection is paid out regularly for a set period. Depending on the cover you choose, this can be anywhere from two years to the rest of your working life. If you’re seriously injured or become disabled and unable to work, having regular payments coming in means you’re more likely to keep your home and maintain your lifestyle.

    Payments start after a set waiting period between 30-280 days. Longer waiting periods usually come with a lower premium, so if you think you can cover your expenses for a few months, it might be worth choosing the cheaper option.

    Although income protection is meant to cover your expenses, it doesn’t usually pay out quite as much as you earn. Payments are often set at a maximum of 75% of your income, although this varies depending on the cover you’ve chosen. Indemnity contracts are tied to the amount of income you were bringing in before the claim, while agreed-value insurance gives you a set amount each month, regardless of your actual income when you make the claim. Although agreed-value contracts may be more expensive, they’re worthwhile, particularly if you’re a part-time or contract worker.

    Even if your income protection payments are lower than your regular income, having regular cash coming in can reduce much of your stress at an otherwise difficult time. Unlike mortgage protection insurance, which only covers mortgage payments, income protection can be used for whatever you like – rent, mortgage, food, bills or anything else.

    Your income, insured

    Like other valuable assets, your income is worth protecting. Think about all the things it pays for – housing, transport, heating, water, food – then imagine life without them. It’s an alarming prospect.
    That’s why income protection is so important. No matter how healthy and careful you are, disease, illness, injury or job loss could derail your life and destroy your earning power.

    Keen to protect your lifetime income? Talk to the team at Global Finance for help.