A good question and one that is often misunderstood when it comes to income protection.

It’s also been coming up in conversations more recently, suggesting there’s some job security sentiment developing.

In New Zealand, there are five situations that impact your ability to earn an income.

1. Your disability due to a medical condition
2. Your disability due to an accidental injury
3. You being subject to a forced redundancy
4. You choosing to quit your job
5. Disability of a family member requiring you to stop work for an extended period.

Points 1. & 2. Medical and accidental injury disability

The first two are where your typical income protection policy operates. In the situation of an accidental injury causing disability, ACC will also be involved. ACC may be the primary support, both medically and financially, though your income protection provider will likely still be involved.

• Income protection surprises most when it's realised it does not automatically cover redundancy.
• Redundancy cover in New Zealand has been a separate extra benefit. Some providers was an add on to income protection, others was only available with their mortgage repayment insurance policy.

3. You being subject to a forced redundancy

I reference "was" as this was a benefit widely available up until 2023 when Covid hit. When Covid hit, all insurers withdrew the product from the market, and only two to date have kept it "alive" as a benefit. 

• I say alive as a benefit as we have not been successful in placing cover for redundancy with them. Leading us to believe this benefit is on offer to attract applications for disability cover while not having any risk tolerance to place redundancy cover.

This blog article of ours from 2014 - Redundancy when do you need to have it? - explains more on redundancy specifically. As a general rule, under the age of 45, redundancy protection for just your mortgage payments for 6 months is likely to cost more than insuring your whole income for disability.

You can look at it as a higher risk, and yes, that may be true. Through the experience we've had with our clients, they claim on their income protection far more than they get made redundant. If we do find we can place redundancy cover in the future, choosing to add redundancy to your income protection rather than just redundancy protection will be our recommended approach.

4. You're done and quit

In the case of you quitting your job, unfortunately, there's no insurance cover for this. Income insurance isn't an unemployment benefit, that's what WINZ provides, though not nearly at the level most people earn.

5. Looking after a family member

The last point is giving up work to care for a disabled family member happens more often than people realise.

We have one provider where; if a close family member is disabled and you have to give up work to look after them, they can pay a claim.

• This benefit will pay up to 75% of the insured benefit for up to six months (with terms and conditions).
• Very useful if you have to stop work to look after your sick wife or husband.

The caveats on this benefit are that the one who is disabled must have been working in paid employment, so it doesn't cover you for sick kids or those in unpaid roles. Also you need to have used your outstanding sick and annual leave.

Hopefully this article has expanded your understanding about protecting your income, if you want to learn more, The Income and Mortgage Protection Section is useful.

If you want to dive in and find out what the best answer for you is, give us a call and we'll discuss a tailored plan for you.

The information is only intended to be of a general nature and should not be relied upon in any part without obtaining full details of the products and services by contacting Willowgrove Consulting Limited. All product and service details, terms, conditions and other information are subject to change at anytime without notice. Terms, conditions and fees apply to the various products and services and are available on request. A disclosure document will be provided to you on request free of charge.