In today’s uncertain world, protecting your income is one of the smartest financial decisions you can make. For many Kiwis, income protection insurance is an essential safety net, ensuring you can continue to cover your living expenses if an illness or injury prevents you from working. However, making the most of your income protection plan requires a thoughtful approach. Here are some practical tips to help you safeguard your financial future.
1. Know Your Policy Inside Out
Income protection policies can vary significantly in terms of what they cover, how much they pay out, and for how long. Some policies may cover up to 75% of your pre-tax income, while others may have lower caps or shorter payout periods. Take the time to understand the specifics of your policy, including waiting periods, exclusions, and benefit periods.
Knowing the details ensures there are no surprises when you need to make a claim. It might also highlight areas where you could benefit from increased cover, especially if your income has changed since you first took out the policy.
2. Match Your Cover to Your Needs
It’s essential to align your income protection insurance with your current financial commitments. For instance, if you’ve recently bought a house or started a family, your financial responsibilities may have increased. In such cases, your existing policy might not provide adequate protection.
Regularly reviewing your policy ensures your cover remains in sync with your life changes. If you have dependents or large debts, increasing your cover might be worth considering to ensure your loved ones remain financially secure if you’re unable to work.
3. Don’t Overlook Waiting Periods
A key component of any income protection policy is the waiting period, which is the length of time between when you become unable to work and when you start receiving payouts. Waiting periods typically range from 30 to 90 days or even longer, and this directly affects your premiums. Shorter waiting periods generally mean higher premiums, while longer waiting periods can reduce costs.
When deciding on your waiting period, think about how long you could realistically cover your expenses using your savings or other sources of income. If you have a robust emergency fund, you might be able to opt for a longer waiting period, which can help lower your premiums.
4. Consider Additional Benefits
Some income protection policies offer additional benefits, such as rehabilitation support, counselling services, or partial payments if you can return to work part-time. These extras can be valuable if you’re in recovery and transitioning back into the workforce.
Check whether your policy includes these benefits, or ask your insurer about adding them to enhance your cover. They can be especially helpful if you’re in an industry where the physical or mental demands of your job are high.
5. Keep Your Premiums Affordable
Income protection insurance is vital, but it’s important not to overstretch your budget. Balancing comprehensive cover with affordable premiums is key. Factors that influence your premiums include your age, health, occupation, and lifestyle habits such as smoking.
To keep premiums manageable, you can adjust elements like the waiting period, benefit period, or the level of cover. However, don’t be tempted to opt for bare-bones cover just to save on costs – you still need enough protection to replace a significant portion of your income should you need it.
6. Stay On Top of Your Policy
Just like other types of insurance, your income protection policy should be reviewed regularly. Life changes such as marriage, a new mortgage, children, or a career change can all impact your financial needs. Reviewing your policy at least once a year ensures it’s still aligned with your current situation.
You should also review your policy when any significant health changes occur, as these could affect your cover or the terms of your policy. Staying proactive helps you avoid gaps in protection when life takes unexpected turns.
7. Talk to an Expert
Income protection can be complex, and finding the right policy that matches your needs can feel overwhelming. Consulting with a financial adviser can help you understand your options and ensure you’re adequately covered. They can assess your financial situation and recommend policies tailored to your needs, giving you peace of mind that you’ve made the right choice.
Additionally, financial advisers can help you navigate tax considerations, as some income protection premiums may be tax-deductible depending on your circumstances. This can help reduce the financial burden of securing comprehensive cover.
Get Started on Your Income Protection Journey
Making sure you have the right income protection policy is a critical step in protecting your financial future.
Whether you’re reviewing an existing policy or considering cover for the first time, it pays to stay informed. At Seek Cover, we can help you explore your insurance options and guide you through this process. Get started here to protect your income today.
Additional Resources:
To learn more about how income protection insurance works and how to choose the right policy, check out this Consumer NZ guide.
For those interested in understanding their rights and entitlements, the New Zealand Government website provides detailed information about the ACC and other income support.
Disclaimer: The information in this article is general information only and is not intended as financial, medical, health, nutritional, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist, or medical or health practitioner, in relation to your own circumstances and before acting on this information.
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