Who needs Income Protection?
The 2 most commonly asked questions about income protection are:
1. Who needs it?
2. What does it do?
To begin, the above is as simple as considering the obvious which is that anyone who needs to earn an income to survive could use income protection cover to protect themselves. A key question to ask when considering whether you need it or not is to ask yourself “can I take one year off from work without pay and survive okay, starting right now?”
If the answer is “no”, then you should consider income protection insurance. It doesn’t matter if you are young & single, middle-aged with family, self-employed or a salaried employee – anyone who woud not be able to survive for a year without any form of income can protect their income earning ability.
Simply put, income protection cover provides money when you are unable to work because of illness or injury. If you become disabled and unable to generate your income, this cover helps protect your quality of life, and that of your family or dependents – and not just for today either. It can be structured to protect you right throughout your working life into retirement, and even beyond.
In fact, one could argue it is more important than a retirement programme. There isn’t much point having a comprehensive savings and retirement plan if you are unable to earn the money to fund it. If you think about it, your home, your car, indeed your whole lifestyle is dependent on one single factor – your income earning ability. Lose that, and the ability to pay for everything you need (and want) is gone.
Every year more than a quarter of a milion New Zealanders are prevented from working for a month or more due to sickness or injury. Of course you need to be able to pay the premiums for the cover, but for a small percentage of your current income you can guarantee that most of your income will continue in the event of a tragedy – major or minor. Often people feel they cannot afford the protection because they are using (and needing) every cent of their current income. However, perhaps one should consider that if they are living right up to the limit of their current income, a prudent adviser would suggest that having income protection is even more important.
To put it in perspective someone once said to me “Id rather earn $49,500 per year with 4 weeks annual leave and unlimited sick leave through to age 65 than earn $50,000 per year with 4 weeks annual leave and 1 week sick leave per year”.
There are however some essentials to check on when looking at an income protection contract. Not all “advisers” deal with this type of cover, so speak with someone who is an expert in this area and make sure you get the correct type of cover for your personal situation. Remember that situations change too – so even if you have some income protection in place, review it regularly. Salary changes, new occupations, different family situations are only some of the reasons for re-visiting your cover.
If you don’t have income protection cover, perhaps you need to reconsider it. If you do, then you should definitely review it with your adviser to make sure it is the best available and that it will deliver what you need, when you need it most.
This information is general in nature and should not be used as a substitute for financial advice. Always consult your financial adviser before making any financial decisions.