Income protection: a cautionary tale

Income protection | The Finance Marshall

Want to find out how to lose $3,724,491…?

I bet no one has asked you that random question already today. 

I’ll tell you what else is random: getting hit by a bus. Or clipped by an electric scooter and turned upside down. Literally. But these sorts of things do happen all the time and they’re scary and life changing. What helps when the unexpected happens is having a soft place to land financially.

Consider this – and here’s where that figure above comes into it: A 30 year old earning a $65,000 salary could stand to lose $3,724,491 less tax in lost income if they were rendered unable to work (this calculation is based on 2.5% inflation and working until age 65).

So what would your life look like if something happened to your ability to work?

Thinking about income protection

You protect your home, life, and car… what about income protection?

Every year, thousands of New Zealanders become unable to work due to injury or illness. 

Despite this, many people consider income protection insurance to be an expensive and pointless policy. 

Insurance is designed to protect the things you value most against the unexpected. It is an obvious decision to protect assets like your home, your car and your contents. 

But how will you pay for all of those things without your income?

Let’s take a quick look at what income protection is and why you need it.

Security from losing your ability to work

What is income protection insurance?

Income Protection insurance is exactly as it sounds. It is designed to give you security if you lose your ability to earn. 

Each policy will have its own specific terms, but generally income protection is designed to pay you a fixed percentage of your usual income in the event that you are unable to return to the workforce. 

There will normally be a stand down or waiting period before your payments will kick in. This is so you can use any sick or other leave entitlements owing to you first. The longer the waiting period, the lower your premiums will be. 

Income protection is not the same as health or illness insurance, which pays out lump sums if you are diagnosed with serious illnesses. Instead, it replaces your lost income in instalments until you can return to work or retire. The payments can be arranged indefinitely if the situation is permanent. 

So now you know what it is, let’s take a look at some of the benefits of income protection insurance:

Peace of mind about income

Peace of mind

Day to day living is only becoming more expensive, and we all work hard to cover our bills and raise our families. Many people have to live paycheck to paycheck. That means that if they all of a sudden can’t work, their family would be in financial strife. 

Income protection insurance can ease this burden for you. You can rest assured that if something happens and you can no longer work, that you can still look after your family.  

Bridging finance Auckland

Take care of bills and debts

If your income stops, your bills and payments won’t. Without protection, how will you have the funds to cover them regularly?

Protecting your income means you still have a reliable means of funds to cover regular bills and repayments, even if you can’t work anymore. Mortgage, debt repayments, credit cards, and hire purchases can all still be managed with regular payments from your income insurance. 

Complements other insurance policies

This type of cover is a great supplement to other forms of insurance. Health insurance can help you with immediate lump sum payments for treatments and care, and life insurance helps your family in the event of your passing. Protecting your income provides you and your family with another level of financial security in the event of an injury or illness. 

Focus on recovery | Income insurance

Focus on recovery

If something unforeseen happens and you are injured or unwell, the last thing you want to be worrying about is how to get money to cover the bills. Income protection removes these stresses from the situation and allows you to focus your time and energy into your recovery and recuperation. 

When you think about it, your income is your most important asset. Without it, you will not be able to maintain all of your other assets. 

So is yours protected?

If not, get in touch with us HERE at The Finance Marshall. We can make recommendations on the right kind of cover for your individual situation. Give us a call today. 


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