Drive carefully if you're under 35

Would you consider yourself a safe driver? It is commonly thought that Women make for better drivers than us men, and whilst this may be true, statistics reveal that the leading cause of death amongst females aged 15 - 34 is in fact motor vehicle accidents. Surprised? I certainly was. Whilst very familiar with the insurance industry, my assumption had always been that diseases such as cancer or heart disease would be the leading cause. I am not completely incorrect as these are leading causes overall for females, when you take all age ranges into account.

So what do the statistics say?

Leading cause of death by age group (Females)

Age 15-19: Unintentional injuries - 51.7%
Age 20-24: Unintentional injuries - 40.5%
Age 25-34: Unintentional injuries - 25.3%
Age 35-44: Cancer - 26.2%
Age 45-54: Cancer - 36.2%
Age 55-64: Cancer - 41.5%
Age 65+: Heart disease - 30.3%

So what type of insurance do I need?

Based on the statistics above, your first thought might be that an "Accidental Death" insurance policy would be great cover. This type of policy is widely available as a quick add-on to services you are paying for already, say for example your credit card, or perhaps with your AA membership. However, whilst this type of policy would likely cover you for the above scenario, it is a poor long term solution.

When you apply for Accidental Death cover it is normally a case of "sign here, now your covered". I am always wary of any insurance policy that doesn't at least ask a few questions, because I know that it means one of two things - 1) You are not actually covered for anything or 2) They will ask the questions when I (or my family) go to make a claim, and then I will find out I am not covered! The case with accidental death cover fits into both categories, you are only covered in the event that your death was completely unrelated to any health condition, and was definitely caused by an accident, and this will be very thoroughly investigated in the event of a claim. Unfortunately you are not able to upgrade an Accidental death policy to full life insurance cover without completely applying for a new life insurance policy. Of course by that time it may be too late to get cover.

The best course of action is to get life insurance arranged from the start as all of the questions are asked up front, you will be assured of being covered for death by any cause, and the premiums while your younger are only slightly higher than accidental death cover. At Inform we can help you with making decisions on what type of insurance is best suited, so talk to one of our advisers about arranging your life insurance cover.

* Statistics based on "Leading Causes of Death by Age Group, All Females - United States, 2004 - Center for Disease Control.

Source: http://inform.co.nz

affordable income protection

There are a few different tricks here, but I want to focus on just one (the one that probably has the biggest impact). When you start an income protection policy you get to choose your “waiting period”. This is the length of time that you need to be unable to work (due to sickness or injury) before your monthly income protection benefit kicks in. A waiting period is sometimes referred to as a “stand-down period” or a “no pay period”. Typical waiting period choices include 1, 2 and 3 months.

As you’d expect, choosing a longer waiting period results in a lower premium. And the difference in premium between an income protection plan with a waiting period of 1 month and a plan with a waiting period of 2 months might surprise you. To give an example, a 40 year old man insuring $50,000 could save about $300 a year by having a 2 month waiting period instead of a 1 month.

However, the choice can be a bit tricky. It’s tempting to choose a longer waiting period because of the pleasing effect it has on cost - but on the other hand, you need to be totally confident that you can get by without any income throughout the period you choose.

How long would your savings last if you were unable to work? If you have an emergency fund (or sick leave owing) that can keep you going for a few months this might give you the chance to extend your waiting period – and this will keep your premium nice and low.

Resource: http://www.inform.co.nz/income-protection/

Income protection - one size doesn't fit all

As far as personal insurance goes, on a complexity scale you’ll find life insurance at one end and income protection at the other.

With income protection the array of choices available can present pitfalls for an unaccompanied traveller - one size certainly doesn’t fit all.

Along the road to finding an income protection policy that suits you, you’ll find: policy types, waiting periods, payment periods, split payments, disability definitions, taxation issues, and more. If we step over most of these for now, and just look at the first and possibly most important crossroad you’ll meet – what policy type to use?

There are a range of policy types - so let’s take a very quick look at them...

Indemnity
The benefit is usually calculated as a proportion of your income at the time you make a claim. An indemnity policy (generally) pays the lesser of the monthly insured benefit or 75% of the best 12 consecutive months income from the previous three years (this depends on the policy). The payment under this option is taxable, and the premiums are deductible.


Agreed value
A fixed level of cover is agreed at the time the income protection policy is set up - and this is the amount paid by the insurance company, regardless of your earnings at the time of the claim. The maximum amount you can insure is usually set at 55% of your gross income. While the tax treatment of this option is open to debate, with a plan that protects 55% the intention is that the payment won’t be taxed, and the premiums are not deductible.

Loss of Earnings
This type of policy is similar in many ways to an Indemnity policy - however the benefit is based on your actual income shortfall. Loss of Earnings (LOE) will look at your actual drop in income, and will then pay you 75% of this drop. In many cases this type of policy will pay more (so it’s often more expensive). Again, the payment under this option is taxable, and the premiums are deductible.

Loss of Earnings Plus
In the past it was difficult to choose between Agreed Value and LOE because it is hard to predict which policy would pay the client more at claim time (if the client’s income had dropped Agreed Value would be better, but if their income had increased LOE would pay more). LOE Plus as a hybrid policy. It incorporates Agreed Value and Loss of Earnings – and if you need to make a claim you can choose the calculation that will result in the highest benefit. In a nutshell, the advantage of this policy is that you’ll get paid the highest possible benefit.


So, how do you decide which path to take? As to which is of these policy types is best, that really does depend on the individual's situation. The choice will depend on a range of things, but one of the most influential is the predictability (or stability) of your income.

An Indemnity income protection policy is often a good solution if your income is going to remain stable – because with this type of policy your actual income at the time you go on claim is very important. This type of plan is usually price competitive and is often the type chosen by employees.

For people who have an unpredictable and fluctuating income (e.g. self-employed, contractors, etc) Indemnity policies probably aren't going to be the best option. People in this situation need greater certainty at time of claim (especially where repeat claims are made), so it's best to consider an Agreed Value policy or a Loss of Earnings Plus policy.

That’s a quick look at the types of NZ income protection polices available - as you can see there’s a fair bit to consider. If you’re starting down the road to find an income protection plan, give us a bell and we’ll help you choose the right path.