Income protection insurance: A story of relief and regret

If you lose your job or can no longer work, your life will be stressful. Make sure your finances aren’t something else you have to worry about.

Meet John. His life was great. In his 40’s, making $260,000 a year. Wife, four kids aged between 7 and 15 years old. He had met with an insurance adviser many years ago and was set up with income protection, life cover and trauma insurances, but he needed to take another look at them.  That’s how we came to meet him. He’d had these policies for five years and a lot had changed in this time. He needed to go over them, review them, and personalise them for his current scenario.

John was a busy guy. He was juggling a lot and as much as John knew he needed to review his insurances, he kept putting it off.  Eventually our adviser had a meeting with him, and John was right – his insurance policies were definitely in need of updating.  The adviser assessed John’s situation and found that the lifestyle John and his family currently enjoyed wasn’t protected – his insurance was tailored to his lifestyle from five years ago. Recommendations were made and communicated.  John agreed that yes, he needed to make some changes but then the matter stalled, with gentle reminders to take action over the next four months going unanswered.

And really, who could blame him? After all, John was fine. He was healthy, he had some insurance already, and nothing would happen to him—he was at the peak of his career, health and family life. Besides, he simply did not have the time to sit down and go over this now – maybe later?

In January the following year, our adviser got an email from John.

‘Sorry for taking this length of time to come back to you.

I need to talk with you about my insurance.

I have just been diagnosed with cancer.’

They met straight away. There was tension between John and his wife – why he hadn’t gotten around to refreshing his insurance policies earlier? But after an emotional discussion, our adviser put in a claim form in for his existing income protection plan. The insurer started paying him his salary/percentage of salary/insured benefit amount? after his stand down period of three months.

This maintained some financial security and enough income for the family to pay the mortgage and house expenses such as food. However, the policy was not as exhaustive as it could have been, only allowing them to maintain their basic lifestyle after a few adjustments.

With his cancer diagnosis, our adviser managed to get his trauma insurance paid out, which reduced some of their mortgage and gave them enough money to have a couple of family holidays to the Pacific Islands when his health allowed, in between treatments.

Unfortunately, the medical diagnosis got worse over the following months and he was eventually diagnosed as being terminally ill with less than 12 months to live. At this point, his life insurance paid out and he passed away.

The learnings from John:

Make sure you have income protection insurance

John’s income protection policy continued to pay him throughout the rest of his life, which was the saviour of their financial situation and lifestyle. It allowed for them and their four children to live comfortably through this very emotional time without any extra unneeded financial stress.

Regularly review your insurance, with every change of circumstance

However, if John had made time to speak to his adviser, the cover would have been increased and meant less stress, and fewer adjustments to their lifestyle. In the five years since he had originally arranged his insurance, his income and lifestyle had changed and he had become involved with other companies. Reviewing his insurances annually would have meant his cover was more thorough.

Don’t think that income protection insurance is enough

John’s trauma payout and then eventual life insurance payout were vital for his family. While the income protection insurance kept the family fed, clothed, and in their home, without trauma and life insurance, the scenario would have been very different.

The trauma payout allowed them to pay a chunk off the mortgage, and then gave them some much-needed time together before he passed away. The life insurance gave his widow control over her future and the ability to plan for the family. Without that, she would have had to make substantial changes to their lives, at an already stressful and awful time.

It can happen to you

While we don’t want bad things to happen, they do. Whether it’s an illness like Johns, or a split-second accident, we don’t know what the future holds. Don’t gamble on your life and financial stability. Every year, tens of thousands of Kiwis find themselves unable to work. While 50% of us have life insurance, only 11% of us have income protection insurance.

Contact Sam Kodi to discuss your options

We won’t overwhelm you with an array of options; we’ll chat to you, and then find the best ones for you that cover what you need.

We can help you:

• Find a policy that works with any existing problems you’ve had in the past, so there’s no worries or surprises.
• Assess the exact cost of the policy.
• Set up a policy in such a way that it maximises your cover but minimises the premium cost, whether that’s through capping the monthly amount or delaying the stand-down period.
• Make sure there are no surprises. Are you covered for redundancy? COVID? We ensure you understand what you are, or aren’t, covered for.
• Will your policy contribute to your KiwiSaver? With compound interest, your six months with no contributions can end up being a lot less come retirement age. If you save $200 a month on a 5% return plan, over 30 years that six month gap adds up to $5,000 in loss of interest. Ouch.

Get in touch. Today. Don’t regret waiting.