Hearing that you have a major health problem like cancer, or experiencing a sudden event like a stroke are two of the hardest things that a person can face. And that’s before the financial problems enter the picture. Trauma insurance can be used in these situations to lift the financial burden – meaning you can focus on getting better.
Do you need trauma insurance?
The one thing that trauma insurance provides is choice. If you have a lump sum of money available you can make choices – do you pay off the mortgage, make alterations to your home, take a long holiday? Trauma insurance can help reduce the financial shock of a major health problem, which will help you get back on your feet.
How do you choose the right trauma insurance plan?
If getting quality, affordable NZ trauma insurance is your aim there are some things to know.
Choose the right trauma insurance plan
This insurance goes by lots of names - some insurers call it "trauma" insurance, others "living assurance", "critical condition" or "serious care" (to keep things simple, we just call it "trauma" insurance). To make things more confusing you can also insure yourself against becoming totally and permanently disabled (TPD) - and some companies offer this as an optional add-on to their Trauma plan, others as a stand alone plan.
What does trauma insurance do?
With this type of insurance you can choose a lump sum that will be paid to you if you suffer certain major health problems - such as cancer, heart attack, paralysis, major burns, and so on. The actual health problems are listed by each plan – the number of conditions and how each is defined will depend on the plan.
What does TPD insurance do?
With this type of insurance you can choose a lump sum that will be paid to you in the event that you're unable to ever work again - totally and permanently disabled.
Do you need it?
Trauma insurance was actually developed with the help of a pioneering cardiac surgeon. He realised that while modern medicine can work wonders, his patients were experiencing major financial hardship after suffering health problems (“curing a person physically and killing them financially” is apparently how he put it…). The upshot is that advances in modern medicine mean you're very likely to live a long life after suffering a major health problem – but the financial problems that this can cause are huge.
The kind of life changing health events we're looking at can be sudden and will certainly have an impact on the way you (or you and your family) live. Although it's hard to say exactly what costs you might face, or exactly how much they'd be - it's important to consider the financial "what-ifs".
A couple of the most common reasons people have for getting trauma and TPD cover are to take care of debt, to provide for family and to cover readjustment costs (like home alterations etc), but the actual amount of cover that's right for you (or whether you need it at all) will come down to your circumstances. This is not an exact science – there's no magic formula for choosing the 'right' amount of trauma insurance - and the right amount of cover is important to discuss with your adviser.
Here you’ll find a run-down on NZ income protection insurance, FAQs, tips, and more. Or, if you're ready, you can receive tailored income protection quotes & advice.
Do you need income protection insurance?
Along with your health, your ability to earn an income is probably the most important asset you have right now. What would you do if a serious illness or accident stopped you from working for the next couple of years - or longer? How long would you last if you were unable to work, and who would this affect?
How do you choose the right income protection insurance plan?
If getting quality, affordable NZ income protection insurance is your aim there are some rules to follow (and some traps to avoid).
Choose the right income protection plan
It won’t be news to you that your ability to earn an income is crucial, and for this reason income protection insurance is often the most important insurance that a person can have (along with health insurance it's the most likely 'personal' insurance that you'd need to make a claim on).
Consider these questions...
- How dependent on your income are you?
- Do you have sources of income other than your job?
- Who would support you if you couldn’t work?
- What would be the financial impact of this?
- Is anyone else dependent on your income?
Income protection can help you answer these questions with confidence. When you set up your plan you’ll have a number of options – we’ll look at these below.
How much to protect?
The first thing to consider is how much of your income you’ll need to protect. This is the amount paid if you need to make a claim, and you can choose this percentage when the policy is set up. Usually this will be a maximum of either 55% or 75% of your before tax income.
Why 55% or 75%? In brief,
the difference comes down to the kind of plan that is used – if you make a claim the 75% option pays a sum that is designed to be taxed, while the 55% payment is not designed to be taxed. In much the same way, the premiums for the 75% option are intended to be tax deductible, while the 55% premiums are not. Which is better will depend on your situation – and your adviser can outline the differences and make a recommendation for you.
How long to wait?
Your income protection insurance payments won't start until after your ‘waiting period’ (also called a no pay period). You can choose the waiting period (though there is often a minimum of 1 month). A plan with a waiting period of 1 month will have much higher premiums than a plan with a waiting period of 3 months.
If you have savings that you could rely on if you were unable to work, or have extensive sick leave, then you might be able to extend your waiting period - lowering your premium. Also if you’re in a two income household then this will also have an impact on how long your waiting period needs to be.
Don’t forget that while a longer waiting period will save you money, it’s important to be realistic – a waiting period that is too long can lead to major financial problems if you can’t get by during that time without an income.
What length of cover?
You will usually have a choice of how long your benefit (the money paid if you need to make a claim) will be paid for - there's often a choice of 2 years, 5 years, or till age 65. Simply put, if you choose a pay period of 5 years, and need to make a claim, you will receive payments for 5 years. After that the payments will stop - regardless of whether you're able to work or not. If you selected the "until 65" pay period, your payments would continue (as long as you're disabled of course) until you're 65.
Which plan to choose?
Choosing the right income protection plan requires a certain level of expertise and experience. For example if you're self-employed with a fluctuating income the type of plan that suits you will probably be quite different from the plan that suits an employed person with a steady income.
Also, make sure you understand what your plan does and doesn't do. Different policies have different definitions (or policy wordings). For example, policies A and B might have quite different definitions of "disability" or "pre-disability income" - which could mean that plan A is harder to claim on than plan B. So keep in mind that premiums will vary depending on the quality of the plans you're looking at. Is a plan you're looking at only cheaper because it's harder to make a claim? It’s worth paying an extra couple of dollars a month to make sure you have cover that gives you decent protection. Your adviser can easily outline the important differences between plans.
Why Its Needed ?
Income protection - protect your largest asset
Is it your home? Perhaps a business? Surprisingly, in the majority of cases it will be your ability to earn an income.
Our income is our greatest asset, yet we often take it for granted. Given the likelihood that illness or injury can strike at any time, this is not a prudent attitude. While ACC will cover a large number of injury claims, it is increasingly limited in its extent, and will not cover sickness.
It makes sense to ensure that you are insured in exactly the same way you would insure any other asset. This type of insurance is called ‘income insurance’. It pays you a regular income in the event of sickness or accident, generally as a percentage of salary.
Surprisingly few working New Zealanders insure their income in any form. Historically, we have relied on ACC, together with the mistaken belief that a serious or prolonged illness will never strike us. Obviously, this is not the case, yet for some reason, we don’t view our income-earning ability as an asset – possibly because we have always been educated to view assets as ‘things’.
As an example, imagine you earn $60,000 per annum. Over a ten-year period, you will generate $600,000 before tax. If you ask yourself the question, “would I insure an asset worth $600,000?” the answer is almost certainly going to be “yes”.
In a nutshell…
Income insurance comes in a number of forms, and can also be called ‘disability insurance’, ‘salary continuance’, ‘sickness and accident’ or ‘income protection’. Despite the different names, they all share a number of features in common.
As with other types of insurance, you pay a regular premium. In return, if you are off work through injury or illness, the insurance company will pay you a regular income until you are able to resume work. If you are only able to take up part-time work, many policies will pay you a ‘partial’ benefit.
However, you cannot ‘double-dip’ by claiming on two policies. In addition, benefits may be reduced if you receive other insurance or compensation, such as ACC.
Policies vary!
The two main types of policy are ‘sickness and accident’ and ‘income protection’.
Sickness and accident policies are the more restrictive. They will pay out only for a maximum of two years, and are usually cancellable by the insurer. Premiums are not tax deductible: however, as a result, any benefit is not taxable.
Income protection policies, on the other hand, are generally guaranteed to be renewable and non-cancellable. They also have longer benefit periods available – up to 65 years of age. However, the premiums are generally much more expensive.
When comparing policies, it’s important to understand clearly on what grounds any payment will be made. Income policies can cause considerable confusion as to exactly what is covered, what is classed as ‘disability’, and when you would be expected to return to work. Some policies will pay you until you resume your normal occupation. Others, require you to take up any occupation for which you are reasonably suited by education, experience or training. Therefore, you could be required to take a job paying less, and not even in a field you necessarily enjoy or want to work in.
Generally, any payment will be limited to 75% of your pre-disability salary. This is to prevent what insurance companies call ‘malingering’.
Spoiled for choice
Income insurance can be confusing because of all the options available...
- How much do you want to be paid?
- How long do you want to wait between suffering the illness or accident and when your income payments commence? (This can make a big difference to your premiums)
- How long would you like any benefit to last?
- Do you want to receive a partial benefit if you make a partial recovery?
Furthermore, even if two people choose exactly the same waiting period, benefit period and amount of benefit, one policy may still pay more than another. The biggest determinant is your occupation. Generally, all jobs are grouped into four main occupational classes, and it’s not difficult to see why a truck driver would pay higher premiums than an office worker.
Your gender will also have an influence. Women pay more than men, reflecting the trends that show they make more claims. This is quite the opposite of life insurance, where men pay more than women because they have a greater chance of dying earlier.
Finally, most policies have a few additional features that you can ‘add on’ – for a cost. You may choose to have premiums waived should you be receiving a benefit, you can have the level of cover indexed to inflation, and you can have the amount of any benefit increased each year in line with inflation.
Visit : http://www.inform.co.nz/trauma-insurance-advice/
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